The U.S. Commodity Futures Trading Commission is warning investors to beware of pitches for low-risk, high-return precious metals investments.
The CFTC issued an advisory warning investors about promises of easy profits to be made from rising prices in gold, silver, platinum, palladium, and other precious metals.
The advisory says that companies, often calling themselves “metals dealers” or “merchants” solicit customers through radio, television, or Internet ads, and their salesmen often promise quick riches with little, or no, risk. These investments are usually structured so that the consumer pays only a small percentage of the metals’ total purchase price, and the company arranges a loan to finance the rest of the purchase.
However, it warns, these companies often don’t purchase the metals at all; don’t arrange the financing or storage, yet charge phony interest and storage fees; fraudulently demand additional funds if metals prices move unfavourably; and, often use the customer’s investment to pay themselves commissions, leaving little equity.
Consumers who invest with these sorts of companies usually do not make the promised profits, and usually lose all or a significant portion of their investment, the advisory cautions.
It cautions consumers to be aware of companies that expressly state that precious metals transactions are not regulated by the CFTC or the National Futures Association. It also notes that warning signs of possible scams include: companies that do not identify the financial institution that will be loaning the customer money; do not identify where the physical metal is located; and, companies that claim to deliver the physical metal to an overseas storage facility, which can be difficult, if not impossible, to verify.