It’s a dangerous world out there—and gold often serves as a safe haven for investors seeking to cushion their portfolios against dangers ranging from war to economic jolts. But gold itself can carry potential risks for investors—risks that can go beyond its sometimes volatile prices.
In the latest example of how gold prices can react to heightened danger in the world, on January 2, a US drone strike in Iraq killed Qasem Soleimani, commander of Iran’s secretive Quds Force—part of the Revolutionary Guard. Within days, after Iran hurled missiles at two bases used by US forces in Iraq, gold prices briefly soared past $1,600 an ounce for the first time since 2013. Prices pulled back some as tensions eased. Last year, gold prices, which at times rise because of fears of rising inflation, rose 18% amid cuts in interest rates and growing but now abated fears of a recession…a weakening dollar, which makes gold cheaper for investors in other countries…and various central banks diversifying their reserves by stocking up on gold.
Rising gold prices draw attention from the media, which rightfully focus on the perils and pitfalls of the yellow metal when it climbs into the stratosphere. But there are other aspects of gold trading that also deserve attention. There are three basic risks involved in buying and selling gold—the acquisition risk, which includes the possibility of overpaying or not receiving the gold you buy…the market risk, which includes the possibility of falling prices…and the sale risk, which includes the danger that you won’t get full price when you sell the gold.
For instance, in 2015, a California coin-and-precious-metals dealer pleaded guilty in a federal court to wire fraud in a case that involved buyers across the US who placed more than $15 million in orders for precious metals, including gold, that were not delivered.
Many global media outlets are covering not how consumers can avoid getting fleeced, although this is usually a footnote, but instead how gold can be “dirty,” politically unacceptable and “tainted.” In an August 30, 2019 feature, The New York Times ran a spectacular and meticulously researched multimedia series titled, “How Tainted Gold May Have Ended Up on Your Phone.” The Times begins one of the episodes with, “If you’re reading this on your phone, you may be holding illegally mined gold from Colombia, where the precious metal has replaced cocaine as the main source of income for organized crime.” The Times series followed on the heels of the publication earlier in August of a book that chronicles the “dirty secrets of the gold trade.”
And on CNBC’s high-profile television program American Greed, an entire program that debuted on September 9, 2019 focused on “Dirty Gold.” This fascinating episode is continuing to be replayed and is widely promoted on the network.
CNBC interviewed me for its American Greed Report in conjunction with the program, and expertly brought together all the elements that I am discussing here—gold rising in value…dirty gold…and how to avoid the scams. The first version was released on September 3, 2019, and the report was updated on January 3, 2020, which coincides with the latest gold price run-up and Iran war fears.
The CNBC program and its experts point out that sometimes gold bullion bars are produced with chemicals that are not environmentally friendly, and they’re also sometimes produced with laundered money and from illegal gold sources. In producing these gold bullion bars, one expert—private investigator David Bolton—told CNBC that child labor in Peru and in Colombia are used. He also said that in the process of producing these gold bars, the environment is being poisoned and the Amazon is being deforested.
I will offer to you the same advice that I gave to CNBC viewers—if you want to increase your certainty of buying “clean” gold, don’t buy gold bars. Buy American Eagle one-ounce gold coins. These coins are produced under the strictest Occupational Safety and Health Administration (OSHA) and Environmental Protection Administration (EPA) standards, and the US Mint obtains its gold from the cleanest sources possible. American Eagle one-ounce gold coins trade at about 3% above the spot price of gold, with current-year premiums at 5%.
And if you are a buyer of gold bullion now, be aware that some lower-grade collectible US Saint-Gaudens Double Eagles ($20 gold pieces struck from 1907 through 1933), which contain 0.9675 ounces of gold, can be purchased at record-low premiums above the melt value of the gold they contain.