Investing in precious metals such as gold, silver, and platinum can help to build a diversified portfolio. As with any investment, however, precious metals involve risks. And precious metals have unique risks that investors should understand.
Be wary of promises of easy and low-risk profits from investing in precious metals.
Sellers of precious metals may present them as safer than securities and a hedge against economic or political uncertainty. Promises of easy and low-risk profits from investing in precious metals have resulted in many investors becoming fraud victims and losing significant money on their investment.
If you are the victim of precious metals fraud, contact the Business Trial Group for a free case evaluation.
About Precious Metals Investments
Precious metals are classified as commodities. Other types of commodities include grains, oil, lumber, and beef.
Commodities differ from securities (such as stocks and bonds), which are purchased as interests in companies, governments, or private businesses. Commodities, on the other hand, are material goods.
Investors may wish to purchase precious metals and other commodities as a means of diversifying their portfolio. There are three common ways to invest in precious metals:
- Futures contracts
- Precious metals securities (including mutual funds and precious metal ETFs)
- Physical metal (bullion or coins)
The Commodity Futures Trading Commission (CFTC) cautions that each of these investment types involve some risks. In addition, precious metals and other commodities can be risky due to supply and demand. Supply and demand are affected by factors that can be difficult to predict and are beyond an investor’s control—such as mining company operations and natural disasters.
FINRA notes that precious metals are “notorious for price movements.” While price swings can be advantageous to professional traders with the expertise to succeed in volatile markets, they present more risk than the average investor is willing or able to accept.
FINRA also points out that entities (such as banks, brokerage firms, and cash metal dealers) offering precious metals to retail investors do not have to be registered with a federal or private securities regulator if the metal is delivered within 28 days. Moreover, firms that engage exclusively in unregulated metals transactions may be subject to little or no regulatory controls of any kind.
Are you the victim of precious metals fraud? Get a free case review.
Precious Metals Investment Schemes
Aside from the inherent risks of precious metal investments, there is also the potential for precious metals investment fraud.
Precious metals fraud can arise from both legitimate and illegitimate investment opportunities.
Precious metals sellers may be operating legally and registered with a regulatory body such as the CFTC or the National Futures Association (NFA). These individuals might offer legitimate precious metal investments, but fail to provide the investor with a full accounting of risks, fees, and other material information. Even if a broker unintentionally misrepresents or omits material information about a precious metals investment, it could still be a case of misconduct.
In other cases, the investment may be an outright fraud, with the seller having no intention of ever delivering the asset to the buyer. Such sellers often operate illegally.
Federal enforcement actions have been brought against both registered entities that were operating legally but fraudulently misrepresented the nature of their precious metals transactions, as well as against entities engaging in illegal, off-exchange transactions.
Fraud Red Flags
Investors may have a difficult time discerning between legitimate and illegitimate precious metals investment opportunities. The CFTC offers a precious metals fraud advisory for prospective investors. FINRA offers these tips for investing in precious metals:
- Look out for pushy salespeople urging you to “act now” because of limited quantities or low prices.
- Investigate a seller’s background before investing. This can be done at BrokerCheck.
- Be skeptical when a seller says that a precious metals investment is “low risk.”
- Offers to buy precious metals using leverage (“on margin) may be particularly risky.
- Understand all of the fees involved with the investment.
The Business Trial Group Protects Investors
Whether you lost money on a precious metals investment due to a fraudulent, illegal scheme or because your broker did not paint an accurate picture of the investment, the Business Trial Group may be able to help you recoup your losses.
We handle commodities fraud cases on a contingency-fee basis, so you pay no upfront fees, and no fees at all unless we recover compensation for you.
Discuss your investment loss claim with our attorneys during a free, no-risk consultation.