As gold prices tripled to more than $1,800 an ounce in the past year, there has been a similar surge in the number of blogs, websites, Twitter messages and YouTube ads touting gold-related investments.
But those glittery, get-rich-quick offers often turn out to be as dazzling as a lump of coal. Investment scams often "ride the coattails" of hot news topics, says FBI white-collar crime expert Kevin Baker.
Some offer "free lunch" seminars to entice potential investors. Other gold-buying offers arrive by email, phone or word-of-mouth recommendations.
Some may be legitimate; many are not.
"Investors should think twice before investing in any gold investment promising exponential returns or any company that claims it is a buyout target for other mining companies," said Gerri Walsh, vice president for investor education at the Financial Industry Regulatory Authority.
Last summer, the Securities and Exchange Commission charged six people with running a $300 million gold mining fraud that persuaded more than 3,000 investors to put in their savings, retirement funds and even home equity. Canadian and U.S. investors were told to expect annual returns up to 36 percent.
This spring, the U.S. Commodity Futures Trading Commission, or CFTC, filed three complaints against companies and individuals, based in either California or Florida, accused of defrauding investors of millions in precious metals scams.
FINRA warns investors to be wary of any pitch on a gold investment that:
-- Promises quick, exponential growth, such as a Nevada mining company stock that promised to "turn $10,000 into $384,600."
-- Touts a gold company as a prime "buyout target."
-- Uses scare tactics, such as fears of inflation or economic meltdown.
-- Makes speculative claims based on a company's proximity to an existing gold reserve.
-- Involves a company that changed its name or trading symbol to align more closely with gold. FINRA said some companies that claim to engage in gold mining originally were incorporated to sell private golf-course opportunities or urban health spas.
Never rely solely on information received in an unsolicited fax or email. Always ask: Why me?
Why would a stranger tell you about a lucrative investment opportunity? Because there is no such "opportunity," says FINRA. In many scams, those who tout a fraudulent company's stock are corporate insiders, large shareholders or paid celebrities who will profit if the stock price goes up. If you want to invest in gold, there are legitimate exchange-traded funds and publicly traded companies that can be part of a diversified investment portfolio. And gold bullion or coins can be part of your holdings.
Whether buying gold stocks, funds, coins or bullion, the Federal Trade Commission urges consumers to do some homework first. Here are some FTC tips:
-- Remember that because gold prices fluctuate, there is no guarantee that gold will increase -- or even maintain -- its value.
-- Purchase gold stocks and funds only from licensed brokers. Check any broker's registration status and disciplinary history at FINRA's "BrokerCheck" (www.finra.org) or of futures firms and brokers via the National Futures Association (www.nfa.futures.org).
-- Prices charged by coin dealers, banks, brokerage firms and precious metals dealers are almost always higher than the gold's intrinsic value. Compare prices before purchasing.
-- Bullion (typically sold in bars or ingots) and bullion coins (like the Krugerrand and American Eagle) are typically valued for their precious metals content only. Collectible gold coins have an aesthetic or historic value that exceeds their face value or metal content.
-- When buying bullion or collectible coins, ask for the coin's melt value -- the basic intrinsic value if it were melted and sold.
-- Consult with a reputable dealer or trusted financial adviser with specialized knowledge in the gold product.
-- Get an independent appraisal of the gold. The seller's appraisal might be inflated. Get a receipt for any transactions.
-- Consider additional costs that will cut into the investment potential. If you're buying bullion or coins, for instance, you may need to buy insurance or rent a safe deposit box.
-- Some sellers deliver bullion or bars to a secured facility rather than directly to consumers. Take extra precautions to ensure that the metal actually exists, is of the quality described and is properly insured.
-- Refuse to "act now." A sales pitch to buy immediately is a signal to walk away.
-- Check a company by searching its name online and reading about other people's experiences. Contact your state attorney general's office (www.naag.org) and consumer protection agency (www.consumeraction.gov) for any consumer complaints.