The ‘Who, What, When, Where, Why and How’ of Gold Investment
How to protect and build your wealth through precious metals ownership
In the fourth installment to our six part series – Where to invest in gold? – we offer insight into the gold industry as a whole – the types of dealers that you can work with, what to consider when you choose a gold firm, and most-importantly how to prospect for the most reputable gold company.
Where to invest in gold? √
Why invest in gold?
How to invest in gold?
Reader note: This is the fourth installment in our six-part series on private gold investment. You will receive one additional installment per day in the order listed above. Each installment is designed to shed light on a specific, baseline area of concern for most investors. In each instance, we draw on our many years of experience in the gold business to focus on what matters most to first-time investors – the means to protecting and building wealth for the long-term future.
Where to invest in gold?
Step 1: Choosing the right type of dealer to fit your needs. . .
The precious metals dealer network can be broadly divided into three business models. There are over-the-counter dealers, e-commerce businesses and client-service firms. Each serves its role in the industry, and each attracts its own type of client/customer. There are good players and bad players within each category, and companies that blend characteristics of each. But understanding the pros and cons of each business model, and how to recognize them in the dealer you are researching, will aid greatly in you making the best possible decision for your investment needs.
Over-the-counter dealers are typically the coin shops, galleries, and pawn shops locally based in your community where you can walk in the door and conduct business. From the standpoint of convenience, these entities can’t be beat. They can often quote a competitive price on many products (due to the way they buy metal) and, depending on their own personal level of experience, can offer useful market expertise. These business especially cater to the transactional customer looking to buy or sell a coin or two at a time and, in fact, for those kinds of buyers and sellers, the over-the-counter shop may very well be the best option.
For the larger investor though, the “what’s available in the case” approach can be a frustration. Moreover, given the smaller capitalization typical of these organizations, buy-back policies can be a hidden danger. Put another way, you don’t know how bad of a deal you’re getting until you try to sell. And quite often, the competitive price you may be seeing when you go to buy is the result of someone else’s pain on the sell side. One additional consideration is local tax laws, as many over-the-counter shops have to levy local and state taxes on purchases. Be sure to factor this into your assessment.
E commerce/SEO businesses
E-commerce businesses typically center their corporate efforts and staff commitments on search engine optimization, order processing and fulfillment, and ‘call-center’ type help desks. Their promotional efforts focus on offering everything under the sun at the best possible price, if only by a few pennies, to attract the price-shopping, ‘compare-and-save’ e-commerce mentality. They are often visible in the first few entries on just about any internet search, and typically employ substantial paid ad campaigns. They are essentially automated fulfillment centers, seeking to perfect the search-point-click-buy-ship process in the mold of other online discounters. For the convenience-minded, transactional internet shopper looking to buy an item here and there, e-commerce businesses are certainly a viable option.
But beneath the surface are a number of organizational flaws that would be especially disconcerting to the long-term sophisticated precious metals investor. Like over-the-counter coin shops, e-commerce businesses are notorious for heavy discounts on the buy side, a process that assists in their ‘compare-and-save’ business model. Moreover, quite frequently, their inventory consists of just a handful of every coin, conveying an appearance of size that isn’t supported by an actual ability to deliver in any kind of worthwhile quantities typical of the serious investor. They rely on nuanced fine print like ‘dates of our choice’, and ‘condition may vary’ to disguise inferior products as ‘apples to apples’ offers.
Additionally, given their focus on fulfillment processes and search engine performance, representatives at e-commerce firms typically possess little, if any, actual market expertise. They don’t identify undervalued areas of the market, investment strategies, or provide any useful advice for their clients. In fact, if you do get someone on the phone at all, it’s more likely to resemble a call-center type interaction. For the discerning investor who seeks to understand their investment, and who seeks a long-term advocate for their portfolio, this can be a paramount frustration. And last, e-commerce/SEO firms are notoriously short-lived in their operations. The graveyard of failed e-commerce firms from the past 15 years dwarfs those still in operation. To this writer’s knowledge, only one has survived more than 10 years.
Client-service firms are typically built on a foundation of personal relationships, expertise, experience, and consultation. They are more likely to have representatives that can answer questions on the spot, educate on market conditions, and advise on portfolio design. Some client-service firms offer e-commerce solutions, but typically as a convenience to their clientele, rather than their primary venue of client interaction. They will more routinely produce daily market commentary, original newsletters, and their sites will typically offer more in the way of educational materials. They will often boast relationships with clients that, in some case, span decades. All told, Client-Service Firms are the one time-tested, proven business model, and most companies that have been in operation 20 years are more will fall into this category.
There are, however, still a number of ‘bad players’ that operate beneath the ‘Client-Service’ umbrella. Specifically, one needs to be wary of companies that operate with large print, television and radio campaigns. Advertising at that level comes at a great expense, and somebody has to pay for it. A very common interaction you would have with this type of firm would feature traditional ‘high-pressure’ sales tactics, typically surrounding convincing arguments to buy coins you’ve probably never heard of, but come with an almost too-good-to-be true promise of performance. These types of products are notoriously overpriced, sometimes egregiously so, and are promoted to benefit the bottom line of the firm selling them, not the client buying them.
To conclude, each type of gold company serves its purpose and attracts its own set of clientele. Which type of business you conduct your precious metals investment with should reflect your goals for your portfolio, and what kind of relationship you feel best fits your needs as an investor.
Step 2: Prospecting for the most reputable gold company
While choosing the type of company that best fits your needs is an important first step, it is imperative it be done in conjunction with a full investigation into a company’s reputation. In the following section, we offer some important guidelines on ways to efficiently and effectively research a company’s reputation, which third-party references carry the greatest influence, how to give both positive and negative customer reviews proper context, how to spot ‘affiliate’ programs (what amounts to fake reviews/ranking sites), and how to make the most of your due diligence.
Start with what can’t be faked – LONGEVITY
The precious metals industry has seen its fair share of companies come and go over the years, some passing quietly in the night, others under national headlines of unscrupulous sales practices, bankruptcies, lawsuits, Ponzi schemes and the like. At the end of the day, you can’t argue with longevity. Ten years is good, twenty years is even better. With those that have stood the test of time, you have companies that have survived both the good times and the bad times in the precious metals market, and are structured to provide long-term support to their clients, rather than make a quick buck.
The precious metals industry is unique in the financial industry in that it isn’t subject to oversight or regulation by third-party government entities like the SEC or CFTC. As such, marketplace forums and feedback sites often serve as a replacement for investors attempting due diligence. While several options can be found, by far the most impartial and least susceptible to vested influence is the Better Business Bureau. When looking at a company’s BBB profile, don’t focus solely on the rating. To be honest, pretty much everybody has an ‘A’ or ‘A+’ rating. What is far more important to assess is the number and nature of complaints, number and caliber of positive and negative reviews, longevity with the BBB, as well as the number of ‘stars’ given a company through the actual customer review system.
Analyzing customer complaints and reviews
When looking at a company’s reputation, it’s important to read both positive and negative reviews, as well as the complaints. Some of what you will see – especially in the negative customer review/complaint section – will be pretty obvious red flags (references to buy-back policies, customer service, product quality, shipping/inventory issues, etc.). But much can be gleaned from the positive reviews as well. For many businesses, a great majority of their positive reviews will be brief, and focused on the same typical phrases (like ‘got my order’, ‘fast shipping’, ‘great prices’). These types of reviews are standard fare for the SEO/E-commerce firms. They say very little about advice, an investment relationship, or professional guidance and are much more indicative of a transactional/order-fulfillment business. To the point, even technically ‘positive’ reviews can be very revealing in terms of setting expectations for the type of interaction your might have with a given company.
A final note on spotting fake reviews: Many review sites are highly susceptible to fake reviews (sometimes posted by the company itself) and pay for play (meaning a company can incentivize an individual to write a good review). Beware of reviews posted directly to a company site (reviews that are not hosted/verified at a third-party site) and companies that have thousands of reviews that all say basically the same thing. Such circumstances are symptomatic of ‘stuffing the ballot box’. Give extra credence to the lengthy, thoughtful reviews and complaints, as those are most likely the authentic ones that will give a you a true sense of a company’s practices. To the point, the BBB does not allow reviewers to receive any kind of incentive for submitting a review, and they require the company to verify that the individual making the review is a client of the firm. Such reviews are designated ‘BBB Verified Reviewer”, a multi-step process which is extraordinarily difficult to circumvent, adding a significant layer of credibility to any review designated as such.
Beware of affiliate programs
One of the more misleading and confusing areas for reputation prospectors are what are known as Affiliate Programs. “Expert Ratings”, “Top 10 Lists”, and “Top Companies Reviewed” sites to name a few, that all appear as impartial, are in fact individuals paid by a specific company to recommend that same company above the competition. They are written from the perspective of an individual, claiming to have done the research, and then sharing their findings as a selfless service to other consumers. The reality is that this couldn’t be farther from the truth. The quickest way to discover if you’re looking at an ‘Affiliate site’ is to see if you can find the disclaimer. All sites are required by law to say they are receiving compensation from ‘one or more’ of the companies listed on their site. Another giveaway is that all affiliate sites recommend the same two or three companies that employ such tactics. To put it candidly, if you suspect you’re on an affiliate site, due your homework, and if confirmed, eliminate it and any of its ‘findings’, from its prospecting efforts.
Answering the question, ‘Where to invest in gold?’ is a critical step in the process of becoming a successful gold and silver owner. A wrong step can be detrimental, if not devastating. First, narrow the field to only the most reputable companies. From there, make sure that the company you choose can meet your needs as an investor and that their philosophy, and associated product recommendations, match your own. And just as the prospector locates, grades and evaluates a deposit all before mining a single ounce, an informed investor should perform comprehensive due diligence, including reputation ‘prospecting’ and dealer-type identification/alignment, all before buying a single ounce.
USAGOLD is one of the most reputable client-service firms in the industry, entering it’s 45th year in business, boasting a 25-year Better Business Bureau membership, a history of zero complaints, numerous detailed and insightful positive reviews, and a perfect five star rating. USAGOLD is highly regarded for it’s client-centered, educational approach to gold and silver investing, providing personalized advice, portfolio strategy consultation, and expert market commentary to its many thousands of clients on a daily basis. USAGOLD maintains highly competitive pricing across all product classes, delivers quickly and securely on all orders, and provides long-term liquidity to its clients. As a matter of convenience, USAGOLD also offers a secure, password-protected online investment portal where clients can browse products, view live pricing, and place orders.
Next, in the fifth entry to this six-part series, we speak to an age-old question that is especially meaningful in the here and now: Why invest in gold?
Disclaimer – Opinions expressed on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. USAGOLD, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.