With the economy in decline, and the price of gold above $960 per ounce on February 25, demand for gold is on the rise. It's a big topic these days and one I'm focusing on more and more on Mad Money. So I’m going to spend the next few days here talking about the gold market; how to buy gold, where your best options lie, and how to avoid scams when trading in gold.
Gold has been around for centuries, ever since the first gold coins were made by King Croesus of Lydia around 560 B.C.
I wonder how old King Croesus would have felt about selling his precious currency to an outfit like “Cash4Gold.com.”
These guys are priceless and I certainly don’t want to give them any publicity – at least any publicity that helps them fleece consumers. Cash4Gold should be given a wide berth. Someone who claims to be a former employee, writing on the consumer activism board ComplaintsBoard.com, has penned a vicious screed against Cash4Gold, claiming that the company taught him from day one how to scam customers looking to sell their gold.
While the entire letter makes for fascinating reading, some of the alleged insider’s comments are both frightening and damning. Worse, there are plenty of potential gold scammers out on the marketplace, and we need to weed them out.
Here's what I'm talking about. A recent expose by Channel 10 News in San Diego unveiled the ridiculously low prices people can expect to get from “cash for gold” companies. In the sting, the news station purchased four gold rings for $58 apiece, and then shipped them off to three popular gold and jewelry buyers: www.GoldKit.com, www.Cash4Gold.com and www.GetGoldCash.com. Channel 10 then sold the last ring to a San Diego pawnshop.
Here is how it shook out:
- GoldKit.com sent the Channel 10 News I-Team a check for $2.80.
- Cash4Gold.com sent two checks -- one for $2.92 and another for $4.99 (presumably an “upgrade” from the first offer), for a total of $7.91.
- GetGoldCash.com paid $7.63 for the ring.
- The pawnshop did the best, paying out $18.50 for the ring on an afternoon where gold was trading at about $9 per gram.
So the local buyback had the best payout. The pawnshop paid out $18.50 for the ring on an afternoon when gold was valued at over $9 a gram.
Another consumer watchdog organization, Cockeyed.com ran a bit of a reverse scam on Cash4Gold.com, rounding up some gold jewelry and hauling it to down to a pawn shop, where it was appraised for $198. But when Cockeyed.com shipped off the goods to Cash4Gold.com, the check came back for the princely sum of $60.
I’d stay away from these guys. The scary thing is that they’re not alone. Plenty of unscrupulous scam artists are popping up on the precious metals landscape, peddling "can’t miss” deals and promising quick and easy money by buying and selling gold.
How can you tell the scammers from the reputable gold dealers? Use these tips before you deal:
1. Know who you’re dealing with. There are a lot of fly-by-night gold dealers out there, but there are a lot of good guys, too. So if you’re looking to buy or sell gold, you’ve got to do your homework. So check out a company you like, ask how long has it been in existence, how long the owner has been at the helm, and see if he or she belongs to any professional organizations (a very good sign as professional groups usually adhere to uniform, higher standards).
2. Know what gold buyers are expecting. Companies like Cash4Gold are in the scrap gold market. Basically, they take your scrap gold, melt it down, and sell it to dealers and other institutional buyers. So if you want to sell your gold and jewelry, know what the “spot price” is for your gold. You’ll have to weigh your gold first, measure it in grams, and calculate the expected value.
3. Don’t expect to get full price. Buying new gold is a lot like buying a new car. The value goes down when you take it out of the store parking lot.
4. Buy direct from Uncle Sam. You can buy from a reputable dealer, but it’s best to buy gold coins directly from the U.S. Mint. They offer a pretty good deal on American Eagle gold bullion coins.
5. Buying gold on eBay? No doubt about it, eBay (Stock Quote: EBAY) is one of the easiest and most popular ways to buy and sell gold. If you’re a buyer, make sure to check out the seller’s feedback rating. Aim to only do business with gold sellers that have more than 1,000 positive ratings – that’s a pretty fair track record. Also, look for repeat sales – always the sign of a happy customer.
If you feel like you’ve been burned on a gold deal, don’t get mad – get even. Start by contacting the dealer right away with your complaint, and then register your complaint with the Federal Trade Commission. The FTC also has a good primer on trading in rare coins.
On Monday, I’ll follow up with Part II of Heavy Metal, with an emphasis on how to invest in gold in today’s volatile markets.
Brian O'Connell contributed to this article.