How to Spot Silver Scams: 5 Mistakes Every Precious Metals Investor Should Avoid

There’s an archaic misunderstanding of money when it comes to precious metals, and some dealers capitalize on this confusion to make huge margins for themselves from unsuspecting investors. These dealers use strong emotions, nuance and slick sales talk to push their customers into buying rare and expensive coins—even when their buyers aren’t collectors.

The precious metals sales industry isn’t regulated, so when it comes to coin shops and dealers, it’s always buyer beware. The most important thing you can do is research all the options for yourself before buying anything. If you don’t, there could be some serious consequences to your retirement portfolio.

This article will help you identify five common silver investment mistakes. Learn how to spot silver scams and guard yourself against them.

Mistake #1: The Numismatic “Bait and Switch”

According to Merriam-Webster, the word “numismatics” means “the study or collection of coins, tokens, or paper money and sometimes related objects (such as medals).” Basically, numismatics is another way of saying “coin collecting.”

A numismatic coin is a collector coin that has value in excess of its metal content because it’s historical, rare or both. Unfortunately, some precious metal companies try to trick their customers into buying these numismatic coins with margins of 30–50%!

Many companies advertise a secure precious metals IRA with real bullion. This appeals to your logical side—offering you a great deal on silver bars and coins that you can purchase at great values. But then the account manager will get on the phone and say, “We think bullion is okay, but you should really look at these other collectible coins.”

This is the first sign that they are trying to up-sell you on a product to help them make more money.

They know they can’t make much of a spread if they only sell bullion, like American Silver Eagles from the U.S. Mint. So they turn up the boiler room pitch about government confiscation of gold and why you shouldn’t buy lower priced and better suited for you, American Silver Eagles…

…but since you become so “wise” by the narrative spewed, they are glad to make margins of 30–50% from these numismatic coins!

The “bait” is the American Silver Eagle you get at a discount if you call them today. The “switch” happens when they turn up the pressure and try to convince you to buy the “non-confiscatable” coin.

If you get sold on these numismatic coins and buy some of them, you already start out deep in the hole as soon as you make the purchase. Don’t believe that? Try to buy and immediately sell a numismatic coin back to the same dealer. You will only get 40–60% of what you just paid—instantly losing most of your money because of the dealer’s margin.

Is there anything wrong with coin collecting as a hobby? Of course not. But if your goal is protecting your purchasing power with precious metals, getting more metal buying bullion should be your strategy instead of paying hefty commissions for numismatic coins.

Mistake #2: Buying Proofs Instead of Real Bullion

The U.S. Mint produces two types of bullion coins:

1) “Proof” bullion coins are specially minted for collectors. They come with a Certificate of Authenticity and are usually sold in a velvet presentation case, encapsulated in plastic. They are triple stamped using specially adapted coining presses and specially polished dies, which creates softly glazed yet minutely detailed images. Proof coins contain .999 pure content guaranteed by the U.S. Mint.

2) Uncirculated bullion coins are minted for investment purposes, and sold to a select number of authorized buyers including major banks, coin dealers and brokerage firms. They are produced using a single stamp method and have either a heavy frost, light frost or brilliant polish. The most popular silver bullion coin is the American Silver Eagle. Uncirculated bullion coins also contain .999 pure content guaranteed by the U.S. Mint.

That’s the real key. Both types have the exact same precious metal content, but the proof coins cost more—much more—because they have a semi-numismatic value. We think buying more bullion, giving you more metal, should be your strategy rather than paying hefty commissions for more expensive Proof coins.

Bottom line: Proofs are for collecting. Bullion is for preserving your purchasing power.

Mistake #3: Investing in Silver Stocks (Mining Shares) and ETFs

The essence of keeping your hard-earned wealth in precious metals is to own an asset that can weather any economic storm. Not every type of silver investment will give you that assurance.

The Difference Between Silver, Silver Stocks and ETFs

Silver: You can count on physical silver to hold its value no matter how the world’s currencies perform. It’s wealth you can hold in your hand. Silver also correlates negatively with stocks—when stocks go down, silver goes up.

Silver Stocks: Silver stocks are usually referred to as “mining shares.” These stocks are an alternative to physical silver, because as an investor, you own a partial interest in a silver mining company. That interest has hopes of great profits and pitfalls of tremendous loss.

The investment in a mining company is highly speculative. Silver demand is increasing, stockpiles are dwindling, and spot prices are low enough that investment for mining is uninspired. Although some of these companies have earned extremely attractive returns over the years—the silver lining as it were —they are simply not the same as an investment in actual physical silver.

Silver ETFs: An Exchange Traded Fund (ETF) is similar to a mutual fund in that it tracks an asset or an index of assets. A silver ETF may hold various silver assets, including stocks in mining companies and silver reserves.

Unlike physical silver, a silver ETF is just a stock with no inherent value. At no time do you actually own a physical silver coin or bar. An ETF does not protect you against market volatility like physical silver does.

The ETF will tell you they have the metals to back up your investment, but here’s the truth. With the massive size of an ETF, there’s just not enough metal for all the customers that invested in the ETF. If everyone tried to cash out of an ETF all at once, they would quickly find out there are not enough actual precious metals backing the account. Read the contract for any of these funds and you will see why we recommend physical silver you own.

If you want your money back when you ask for distribution, there’s a good chance your silver might not even be there if you own silver stocks or ETFs. That’s why it’s SO important to own real physical silver.

Mistake #4: Leveraged Investment Scams—Falling in Love with the Future Price of Silver

If you believe that the price of silver will definitely rise again, you might be susceptible to the leveraged silver account scam.

These aggressive salespeople will try to convince you that the price of silver will continue to go up indefinitely—so you should get a loan now in order to get silver at its current low price.

While there are many good reasons for making this argument, it doesn’t change the fact that silver can be volatile, and taking out a loan to ensure you have silver in the future is not a good idea.

Can you imagine wanting to make an investment so badly that you go out and borrow money at a high rate of interest to complete the transaction?

The usual leveraged scam works in three steps:

  1. You call a dealer to purchase some silver coins, maybe $5,000 worth. But then the salesperson tells you about something “highly confidential” or gives you a piece of inside information about a “can’t miss” short-term rise in the future price of silver.
  2. The salesperson then offers to loan you $20,000 so you can have $25,000 worth of silver when the price skyrockets (maybe even tomorrow).
  3. A payment plan is then set up, and as you pay more into the leveraged account, more physical silver is supposedly added to your account that is held in a secure location.

Problems you might face if you fall for the leveraged investment scam:

Problem 1: If you get a loan for silver, you won’t get your silver until your full loan and all the other fees and the interest have been paid back to the lender—the precious metals company.

Problem 2: If the price of the metal you invested in falls lower than what you paid, you could end up with even more debt.

Problem 3: If prices keep dropping and your equity falls below 15% of the purchase price, the financial institution will issue an “equity call” requiring you to pay more fees and bring your equity above the equity call level.

Problem 4: If you can’t or refuse to pay additional money, the lender will sell the metal for you to pay off your loan, and will send you a bill if the sale for the metal does not cover the amount you owe.

Problem 5: These leveraged investment scams are high-risk because you will receive an equity call if the price of the metal goes down, stays flat, or simply doesn’t go up enough to offset the mounting storage and interest charges.

Problem 6: What’s even more troubling is if the company is a running fake business or Ponzi scheme, they might continue trying to collect loan payments from you, or they could shut down their phone number and disappear.

Whatever happens, don’t allow yourself to become manipulated into taking out a loan for the future prices of silver or any precious metal.

Mistake #5: Not Knowing the Right Questions to Ask

At West Hills Capital, we recommend you do your own research and due diligence before purchasing any precious metals for your IRA.

While you’re shopping, keep in mind that an honest dealer should be able to give you an exact total for the cost of your purchase before the order is made. Always ask about any additional charges before making your initial purchase. Even after the transaction, keep your eyes open for any hidden or unexpected charges.

Scam Prevention Checklist

Scams are easy to find if you know what you’re looking for, but to a beginner investor who’s influenced by the slick-talking salesman, it’s not always as simple to distinguish among a trustworthy bullion dealer and a money-hungry middleman that charges ridiculous premiums.

Also, the companies that are involved in the precious metals IRA scams exploit the increasing demand among retirement investors by deceiving them to purchase products that are either overpriced or bad investments overall. Often such products are sold at premiums way above their fair market value of the precious metal content, and in sometimes the coins are not even qualified to be deposited into the precious metals IRA.

You’ll be better off dealing with a company that has an established partnership with a leading custodian and top-rated depository.

To help you spot a scam and avoid losing your money, here is a checklist of tips to follow and some questions to ask before you agree to anything:

First off, find a reputable precious metals dealer that doesn’t charge unfair fees, commissions, or premiums.

  • What is their reputation like? (Both online and offline)
  • Do they try and persuade you into buying numismatic coins instead of bullion?
  • Do they assist in the process of setting up and funding the precious metals IRA?
  • Do they make it easy to deposit the purchased bullion directly into the IRA?
  • What kind of fees do they charge other than the premiums on the metals?

Make sure your dealer works with a trustworthy Custodian.

  • Dealers should be transparent about the IRA custodian they deal with, as that is the company that will be holding your account and will act as the trustee of the account.
  • How much do they charge for service fees, storage fees, transfer costs, and/or other administration fees?

Double check where your metals will be held and stored.

  • How much do you have to pay for storage fees to the depository based on how much metals are stored in the account?
  • Are they stored in a segregated account or are they commingled?
  • Are the metals 100% insured or only partially?

Is the precious metals dealer willing to buy back the precious metals you purchase from them? If so, at what cost?

  • This is one of the important differences between an honest company and one that uses scam tactics.
  • Sometimes companies will still offer to buy back the metals, but the dealer will buy them back at a price that is much lower than the original sales price, causing you to take a loss.

Make sure the products you’re about to buy are eligible to be deposited into an IRA.

  • Be sure the dealer isn’t trying to push numismatics, collectibles, rare coins, or anything other than bullion.

✔ The most important question: Can you give me a straight answer on the total price of my order including all applicable fees and taxes?

Bonus question to ask: “If I were to sell the same product to you, what would you give me right now?”

With West Hills Capital, you can be sure you will never be scammed or sold on collector coins— and you will never be forced to commit to any time frame. Whether you want to roll a portion or all of your retirement accounts into precious metals, the choice is completely up to you. Our purpose is to help you protect your purchasing power.

Call (800) 867-6768 and West Hills Capital will help you get your account started today…with absolutely NO fees.