When I began my research over two years ago, and started trying to educate myself on how the precious metals industry works, how to buy & sell metals, typical procedures for other dealers, etc., I not only learned some very useful information, but I also discovered some things that could make precious metals investing a very confusing thing for a lot of people. We talk about a few of these things in our Safety Step: Protect Your Future course, but in this article I’d like to cover many of the most important things to watch out for when doing your own research, and even things to avoid altogether.
There are a number of tactics used by precious metals dealers all across the country to increase their profits from coin sales. Because of the razor thin margins that come with selling bullion coins and bars, dealers often resort to pushing things that can come with a higher premium, in order balance their actual gross profits with their overall volume of sales. Here a few of the tactics commonly used:
1. Government Confiscation
This is one of the most common concerns among new investors who are trying to factor in any risk that may come along with precious metals investing, and it’s also one of the most commonly used sales tactic among dealers. Dealers will use this as a way to scare newer investors into purchasing collectible (also referred to as numismatic) coins, as opposed to bullion coins that come with a much lower premium cost. Why would collectible coins be the solution to a future confiscation? Executive Order 6102, issued by FDR on April 5th, 1933, exempts in Section 2, subparagraph b., “[G]old coins having a recognized special value to collectors of rare and unusual coins.” So with that in mind, does it make sense to buy collectible coins now, in order to protect against something similar happening in the future?
There are many things going on here, but for starters I would just say, “No, purchasing collectibles wouldn’t necessarily protect you from another similar scenario.” Let’s start by answering the question, “Will another gold confiscation ever happen again?”. The short answer is, yes, it could happen again, because the government can do whatever it wants at any given time. However, the better question to ask now is, “Would it make sense for the government to confiscate gold again?”. The answer to this would seemingly be an easy “No,” because the U.S. dollar is no longer tied to a gold-standard; something that gave reason for FDR’s decision to sign in his executive order. Because we are longer on a gold standard, it wouldn’t really make sense for the government to take away the citizens’ gold, because if it needs to increase the money supply, it can just print more money whenever, since the dollar does not have an anchor! That’s why I personally believe it won’t ever happen again.
But, let’s say it did for a second. Let’s say that at some point into the future, the government feels the need to take away the gold that millions of people worked hard to save for. In that case, who’s to say the government will just automatically exempt collectible coins again? What if they decide to include anything that carries gold content, and then all of those years of putting extra money into your investing, in order to cover the high numismatic premium that goes along with it, is lost?
It wouldn’t be quite as devastating if you had been purchasing bullion instead, because all of the money that you had used to purchase it would be going towards the pure metallic content of the bullion; none of it would have to go towards the extra collectible value. The reason that would be important is because one thing the government did do was pay each person back the current value of each ounce of gold. So, if you were to own a lot of bullion, then you would be paid back the current value of the metal, but if you owned collectible coins and they were also confiscated, you would still only be paid back the metallic value, and not the collectible value. This is all assuming that they would even pay us back, like they did in 1933.
So, to sum up this point, I don’t believe you are any safer by purchasing expensive collectible coins than you are purchasing straight bullion, because 1) it is very unlikely for the government to do something like that again in the first place, and 2) because if they did, they can (try to) take whatever they want, whether it’s bullion or collectible. So when someone tries to sell you an expensive numismatic coin for this reason, you might want to consider some of these things!
2. Reportable Transactions
Sometimes, a dealer may tell you, “You don’t want the government knowing what you have, so you need to buy this instead of that.” Even though it’s true that there are some reportable transactions that can place, they are very few in number, and there are easy ways to avoid them as an individual investor. But even so, dealers will sometimes exaggerate, and try to lead you to believe that some of the investments you’re interested in are reportable. This has happened to me before, and the person I was talking to on the phone went as far as to say that my investment choices were “stupid,” and that I needed to buy the Canadian commemorative coins they had, which sold for a much higher premium.
However, I knew that 1) since the precious metals industry is unregulated, the government can’t just “know what I have,” and 2) I knew that the coins and bars I had aren’t on the IRS list for From 1099-B (we’ll discuss this more in a moment). So the way in which he was trying to sell me these coins was nothing short of trying to manipulate my decision using a sales tactic.
Here’s what you need to know about reportable precious metals transactions:
The IRS has a particular form, Form 1099-B, that applies to a very specific list of bullion sales, that only apply when you are the one selling back to a dealer, not when you buy from a dealer. Below I have listed these specific bullion products that would fall in line with Form 1099-B:
GOLD—Any size bar or round totaling 1 kilo (32.15 troy oz.), with a purity of 0.995.
SILVER—Any size bar or round totaling 1000 troy oz. or more.
PLATINUM—Any size bar or round totaling 25 troy oz. or more.
PALLADIUM—Any size bar or round totaling 100 troy oz. or more.
Additional specific bullion coins that are reportable upon selling them back to a dealer:
Gold 1 oz. Canadian Maple Leaf Coin selling at a quantity of 25 or more.
Gold 1 oz. South African Krugerrand Coin selling at a quantity of 25 coins or more.
Gold 1 oz. Mexican Onza Coin selling at a quantity of 25 coins or more.
Junk Silver of any combination totaling $1,000 in face value or more.
Even though it’s nice to know what is and is not reportable when you sell back your metals, it means nothing to those who invest with the intention of holding the metals forever. So, in using this as a sales tactic to get you to avoid purchasing bullion is not right, because saying, “You don’t want the government to know what you have” implies that when buy the bullion it’s immediately reportable, which just isn’t true. The other reportable scenario would be if you purchased precious metals with cash meeting or exceeding $10,000 in a short period of time. TRADEway Precious Metals avoids that problem by only accepting bank wire payments for our bullion investments.
3. “Baiting” Through Advertising
A pretty common way to get your contact info, in turn leading to a salesman calling you to sell you expensive coins, is by using nice advertising campaigns showing off low pricing, free delivery (often for new clients only), “fast” shipping (usually 2-6 weeks), and so on. All of these sound good, so new investors will go to learn more, and end up having to give their phone number in order to receive a Free Gold & Silver Guide.
Once your number has been given, you can expect a phone call not long after from a broker who’s incentive is most likely to sell you collectibles, commemoratives, or whatever it may be in order to make a good commission. Just be careful about clicking on advertising banners online, cause they might lead you to an eventual page that collects your contact info, or just annoy you with “cookies” anytime you try to get online.
4. Fear Induced Urgency
This might be what struck me the most, when I was still very new to the precious metals industry and trying to figure out what was best for me as an individual investor. Fear has always been a great sales tactic, and when it comes to selling precious metals it is no different. In fact, fear might be the greatest precious metals sales tactic.
It is true, the reasons that we buy precious metals can be kind of scary, depending on your personality and perspective. But there’s a big difference in preparing for future scenarios, and fear buying. Fear selling takes place everyday, because it’s a lot quicker to make money when you scare people into spending thousands of dollars at once to be ready for “the end of the dollar.” Regardless of what will happen to the dollar, I don’t feel like it’s right to put a date on the collapse of the dollar, and tell people to buy now (meaning putting A LOT of their savings into precious metals up front) so that they’re protected.
Rather, I like to encourage investors to implement our Gradual Investing strategy, taught in Safety Step: Protect Your Future, so that they are both accumulating precious metals over time, and still have available cash savings which is very important as well. Even though I thoroughly question the stability of our dollar, I still believe there are a lot of things that would have to happen before it collapses, which is all the more reason to become educated and start preparing in a thoughtful manner now, rather than waiting until the markets are volatile, and fear buying.
It’s always good to be educated on what’s going on around us, especially when it comes to our own financial protection. Knowing these things can contribute to your preparedness, which is exactly what TRADEway’s goal is; offering the services, tools and education that can help you become prepared.