Heed This Warning Before Investing in Precious Metals

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If you've been thinking about investing in precious metals, you may want to take a beat. The Commodity Futures Trading Commission (CFTC) has an important message for you. Despite what you see in videos, commercials, or on the internet, and despite what you read in articles by famous faces selling books, all that glitters may not be gold.

According to CFTC, gold and other precious metals are highly volatile and past performance is no guarantee of future returns. A better bet for most people is likely opening a brokerage account to invest in stocks and ETFs instead. With precious metals, what you're being sold may be a bill of goods.

The warning

In a joint effort to fight the rise of precious metal fraud, the CFTC has partnered with the Financial Industry Regulatory Authority Inc. and the North American Securities Administrators Association to emphasize the risks associated with overpriced gold, silver, and other metals.

Here's the scary thing, though: No one believes they're overpaying for gold, silver, or other metals. By the time they buy, they've been thoroughly convinced they're doing what needs to be done for their personal finances . And that's because bad players can be so convincing. After all, there's a ton of money to be made in separating investors from their hard-earned dollars.

Over the past decade, the CFTC has pursued cases against dealers who collectively sold more than $500 million in overpriced metals. In 2020, authorities cracked down on two precious metals dealers who stole $185 million from elderly investors -- people who may not be able to return to work and pay their living expenses.

Is your salesperson legit?

No one is saying you should never invest in gold or precious metals. Officials are just reminding consumers to do their homework before making an investment decision. Take a look at the following list. If you see anything that reminds you of your salesperson or the situation in which you find yourself, you may want to back out.

You're being sold doom and gloom

It's common for people to buy gold as a hedge against a stock market collapse, and that may be why gold and precious metals salespeople focus on talk of doom and gloom. If they can appeal to the part of your brain that reacts to danger, they know they have a better chance of getting you to buy.

Better yet, the purchase will likely be on their terms -- especially if they convince you that your world is about to fall apart. If you're being sold doom and gloom, someone may be setting you up for fraud.

You have a pushy salesperson

According to Consumer Affairs, scammers with pushy sales tactics have caused investors to lose thousands of dollars in retirement funds. If a product is worth buying, it can pretty much sell itself. If the salesperson feels the need to push you, they likely know something you don't.

The salesperson claims to be an expert

If the salesperson claims to be an expert but you can find no evidence that it's true, assume it's not. Anyone can call themselves an expert, but you need someone who actually knows what they're doing when you're shelling out thousands of dollars.

Questions are not welcome

Part of financial literacy is asking lots of questions. By the time you're speaking with a salesperson, you've ideally done your research and know what to ask. If you're ignored or the salesperson attempts to change the subject, it's a good sign that you're working with the wrong person.

You met the salesperson at church or as part of a political group

CFTC says that scam dealers use a technique called "affinity fraud" to deceive the elderly. The scammer joins a specific political or religious community (online or in person) and pretends to be "one of you." Once they have your trust, they're confident they can make a sale that's not in your best interest.

For some investors, precious metals make perfect sense, but the same is not true for everyone. The point financial watchdogs are trying to make is simple: Do your homework, know your risks, and don't believe anything you're told without solid evidence to back it up.

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