As many already know, the price of gold has skyrocketed during the last five years. The current price per ounce is over $1,800, which is approximately three times the price per ounce in August 2007. This historic rise in the price of gold has fueled an increased number of investment opportunities available to investors including legitimate and fraudulent opportunities.
The Financial Industry Regulatory Authority (FINRA) recently issued an alert on how to spot some of these fraudulent investments. Here’s a summary what FINRA recommended you look out for:
* Many gold-related investment scams involve the stocks of gold mining and/or exploration companies. The stock value is often based on gold reserves that are difficult to estimate, much less verify.
* Price targets or predictions of swift and exponential growth. These predictions often are based on gold reserves, the actual existence and true size of which are next to impossible to verify.
* References to being a “buyout target” for other mining companies.
* Claims that tie stock performance to the general rise in gold prices. Stock prices tend to rise or fall for a host of reasons, such as overall market conditions, sector performance and an individual company’s earnings. A rise in gold prices does not guarantee a rise in the price of a gold company’s stock—there might be little or no correlation between these two things.
* Scare tactics such as the threat of inflation or an economic meltdown. While some investors might hold gold as a hedge against inflation or economic uncertainty, owning a gold stock does not automatically serve that same function.
* Speculative claims based on a new reserve’s proximity to an existing reserve.
* A change in the company's name or trading symbol to align it more closely with gold.
* Be wary of “free lunch” programs that purport to provide educational information about gold investing.
* Claims that making profits in gold are "easy."
* The use of headlines from respected financial news sources regarding gold, which can easily be taken out of context.
* Mention of the names of major investors or investment institutions that provide an air of credibility.
* Statements about how much easier it is for lower-priced stocks to skyrocket in value in comparison to higher-priced stocks.
* Pressure to invest immediately.
For more information on FINRA’s alert, tips on how to avoid potential gold stock scams, and alternatives to investing in gold, read FINRA’s alert here (http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/FraudsAndScams/P124119).
As with any investment, investors need to make sure they due their own due diligence before investing.