Rising gold prices -- the precious metal was up 16.5 percent in the first quarter -- have given renewed life to some old scams, using new technologies. Just last week a man was arrested in Kansas and charged with selling fake gold bars on Craigslist.
Michael Fuljenz, president of Universal Coin and Bullion, a member of the Professional Numismatists Guild's Accredited Precious Metals Dealers program, says gold counterfeiting of popular coins, including the one-ounce silver and gold American Eagles as well as ingots, has become a real problem, with many forgeries coming from China.
The fakes use metals such as copper, nickel and zinc covered with a thin gold or silver coating. The counterfeiters may increase the dimensions of the bar or coin slightly to compensate for the different metal weights. In a new twist, counterfeiters are now using sophisticated packaging to fool gold buyers, who know they shouldn't open blister packs or special coin holders. That makes it easier for counterfeiters to pass off the fakes.
With the U.S. Treasury Department more focused on threats of terrorism, many of these scams fall under the radar. But you don't have to be a victim. Here's what you should know before buying coins or bars of gold and silver:
Only buy precious metals from a reputable dealer. And that is not necessarily the one blaring cable TV commercials at midnight! You can find that dealer at the website of the American Numismatic Association (money.org). Click on "find a dealer" and search by location and specialties. Or visit PNGDealers.org, the website of the Professional Numismatists Guild, where you can search for accredited dealers.
Don't pay too much. Gold coins that are not collectors' items because of their rarity are known as bullion coins. They are priced based on the price of gold in the cash trading markets on the day of purchase. You shouldn't pay more than 5 percent over the "spot" (London) price of gold for one ounce bullion coins or bars -- although smaller bars and coins could cost a 10 percent premium. You can find the spot price of gold throughout the day at www.Kitco.com.
Take delivery of your gold and store it securely. Don't fall for offers of free storage of your coins (with the exception of IRA custodians noted below). Have the coins sent to you by insured certified mail, and then store the coins or bars in your own safe deposit box. (Yes, I know that if you're preparing for the end of the world the banks will be closed. But you'll have some advance warning of that kind of disaster, and in that case a loaf of bread or a five-gallon bottle of water will be worth more than gold.)
Beware when selling your gold. It's as easy to get ripped off when selling as when buying. Unscrupulous dealers quote low gold prices, so you must check spot prices. Some may not give you full value for rare coins whose value you don't know, so get two appraisals before selling. And there are outright fraud schemes where a dealer takes your gold and his check bounces.
Bullion coins and bars may qualify for IRA investments. You can buy a limited variety of gold and silver bullion coins for your IRA, as well as some bullion bars. But they must be held by an independent IRA custodian trustee. Lately, some metals companies have been touting the idea that it is legal for you to buy coins for your IRA and store them yourself. But that concept has not yet been tested with the Treasury or the IRS.
There's a certain attraction to gold that has transcended millennia, and thus it is no surprise that gold is in demand when central banks announce they are manipulating currencies. But it's worth making sure you get the real thing, not fool's gold. And that's the Savage Truth.
Terry Savage is a registered investment adviser and the author of four best-selling books, including "The Savage Truth on Money." Terry responds to questions on her blog at TerrySavage.com.