We’ve all heard about the long-term asset building potential of gold. Silver is unpredictable and very tempestuous in the short-term, but in the end it will always retain its value; particularly with its endless uses in industry and all the modern technology that runs on electricity.

So, either of these precious metals is a sure-fire investment, right?

Yes and no…

If you’re working with the right advisors and not getting pulled into one of the many “if it looks to good to be true, it probably is” opportunities that proliferate like rabbits day by day.

Due-diligence is key and it’s always best to never, ever, ever make an investment with greed in your heart! This is one of many ways that the rich get richer and the poor get poorer.

There are more “doomed to failure” offers out there than true investments. And when it comes to commodities, sometimes you can wait for years for the right market position.

Let’s take a look at three of the most common poor investment opportunities in the gold and silver investment sector:

1. Bullion Pools and Certificates

This is the definition of cheap and easy, but it’s anything but ethical or morally acceptable. This particular investment is unbonded, uninsured, and the storage of your (supposed) precious metals is unallocated. The entities selling this type of investment make it look really attractive, making it sound like you’re actually buying a secured amount of gold or silver.

The reality won’t sink in until the bullion bank gets into trouble and has to sell off its stock to get out of the “deep end of the pool”.

The certificate you’re buying is actually just a share of the total pool. If each pool of gold or silver is worth a $100,000, and there are 100 investors allocated to each pool, then you can buy in for a $1,000. Sounds good so far right? If the value of gold or silver (whatever you’re investing in) goes up and the pool suddenly becomes worth $200,000, you’re a cool $1000 richer.

Here’s the thing. You don’t own anything. You’re a contributor, a “money man” (or woman). The bullion bank owns the gold and is free to leverage it as they please. If they get into trouble, guess what? They’ll sell the pool (at a loss obviously, because they’ve over-extended themselves), and are only obliged to return your share of the sale price, rather than the current value of the bullion in the pool.

You’re also not protected by any sort of bank deposit protection, you’re S.O.L. because that only applies to hard currency.

Look instead for bonded and insured “allocated” gold and silver investments.

2. Gold/Silver Futures and Options

The idea of buying futures and options contracts isn’t an outright scam. But like most other commodities investments, it’s fraught with risk and often billed as “the road to easy money”.

The commodity exchanges hold all the power with this type of investment, and can legally and swiftly change the rules in boom or bust situations. The most important thing to remember, if anything, when buying into futures and options is that the exchange can freeze the value of your contract anytime they please, while the immediate delivery and exchange values continue to rise and line their account.

Basically, you’re out of luck and they reap the benefits. Mostly a lose-lose for most unseasoned investors. Not for the faint of heart, or light in the pocket investor. Don’t risk your kid’s college fund in futures.

It’s impossible for a layman, and even most seasoned investors to see if it’s a scam or not and you’re bound to lose your money if you’re not experienced and watching the exchange minute by minute.

3. Leverage Investing

Leverage account investing is best left to the big-wigs on Wall Street too. With 100% risk and very little chance of recouping your investment, this is one of the most scary ways to invest in gold and silver.

You borrow a large amount of money to make a large one-time gold or silver position from a dealer (also called a margin investment), who then charges you a monthly payment, plus interest for the privilege.

With a leverage investing, you’re relying on the value of your position rising consistently, outgrowing at a rate that swallows your monthly commitment including interest, which puts money in your pocket instead of taking it.

Not to mention you’re relying on the integrity of your dealer. This space is rife with scams!

The trouble also, is that gold is fairly predictable and slow but still fluctuates severely. You could be sitting pretty one minute, and owe thousands in the next. And silver’s a bull in heat that quickly turns to a lazy starving bear in a flash!

Not for the faint of heart and not a sound investment by any stretch!

— source:
goldsilver.com/article/six-precious-metal-scams-to-avoid/
goldsilverbullion.com/PhysicalMetalsVersusPaper.