Wednesday, May 12, 2010

Beware Of The Hype

Although it's entitled "The Dangers Of Buying Gold," this piece by bullion dealer Bill Haynes is really about the danger of buying gold at well above bullion value based on an emotion-inducing sales pitch.
Advertisements promoting gold dominate the airwaves, touting gold as the ultimate investment, the place to be in these times of financial and economic uncertainty. Will the respondents enjoy the benefits that the ads promise? Probably not.

Most of the firms sponsoring the ads promote gold coins at grossly inflated prices, as much as 30%, 50% even 100% above the real market prices of the coins. How do these firms convince investors to buy at such inflated prices when the normal markup on gold bullion coins is 2% to 7%, depending on the coins and the quantities? Several factors come into play.

First, the ads are based on fear, and the telemarketers reinforce that fear by talking about alarming topics that dominate the news, such as the declining dollar, the burgeoning national debt and massive deficit spending. The possibility of war with Iran is often used to scare callers.

By focusing on scary topics, the telemarketers get callers to react emotionally, instead of logically....
He then takes up the possibility of confiscation, noting that the claims in the sales pitches do not square with the facts. If gold is confiscated, common collector's coins might be confiscated along with bullion coins. The fact that the terms exempting collector's coins were never defined in President Roosevelt's executive order leaves a leeway if the same Executive Order is reinstated.

(Actually, the leeway existed on both sides. One of the reason why so many semi-numismatic pre-1933 gold coins exist nowadays is because more than a few people concluded back then, "well, they're of special value now.")

Granted that business is business, but caveat emptor is part of business too.

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