Are Gold Dealers Regulated?
Gold dealers are entities authorized to sell bullion. Additionally, this term includes coin shops, pawnshops and scrap collectors that make direct sales to consumers.
Dealers selling actual cash (including Federal Reserve notes) or paper money instruments like money orders and traveler’s checks must report these sales to the IRS, while payments made using personal checks, wire transfers or credit cards do not trigger reporting requirements.
Gold has long captivated investors. From being seen as an emblem of wealth to currency during wartime, investors have long seen gold as an investment vehicle worth considering. Today, however, its regulation by various government bodies worldwide makes this commodity even more desirable.
A dealer in precious metals is defined as an individual, partnership, association or corporation primarily engaged in buying and selling bullion coins and other property for resale to the general public. No registration with state securities regulators is necessary.
Before purchasing gold online from any dealer, do some online research of them first, paying special attention to how long they have been operating as well as Better Business Bureau ratings and any number of complaints against them. Also be sure to see whether they belong to major industry organizations; if necessary consult a legal adviser first if there are any questions. Unfortunately due to federal lack of action regarding regulation of gold dealers; states and cities have had to pick up this responsibility by overseeing gold dealers instead.
Gold doesn’t fall under the jurisdiction of either the Securities and Exchange Commission (SEC) or its counterpart, the Commodity Futures Trading Commission, unlike securities. This gives precious metal dealers greater latitude in marketing their product: celebrity endorsements and client testimonials may be utilized that wouldn’t normally be permitted at registered investment advisory firms (RIAs).
Many victims of gold coin scams report hearing about their interactions with specific dealers via conservative political radio shows hosted by Sean Hannity, Mark Levin or Tomi Lahren. Fisher Capital was sued by both the SEC and CFTC in 2020 for defrauding elderly investors out of over $185 million through undisclosed markups on gold and silver investments that was not disclosed to investors; as part of this scam Fisher paid to promote itself on right-wing media outlets.
Due to no regulations requiring dealers to disclose the reasonable resale value or costs associated with bullion products they sell or any fees they charge, most knowledgeable buyers of precious metals opt for bullion banks where their gold can be stored either allocated or unallocated accounts and they pay minimal storage fees.
Gold has long been considered an investment vehicle, yet it continues to attract fraudsters who use various techniques against precious metal dealers.
One of the most prevalent techniques involves bait and switch. A dealer will advertise a coin at an exceptionally low price before selling it at much higher price to you – pocketing any profit made through that difference in pricing from his sale.
Some companies engage in unscrupulous practices to generate commissions. For instance, some will permit customers to open both allocated and unallocated accounts with loans being made on either. This practice violates Dodd-Frank as it exposes customers to margin trading and leveraged derivatives.
Another popular scam involves selling and holding gold bullion and coins for customers’ IRA accounts in their home – contrary to IRS regulations which stipulate any such purchases must be stored safely.
Precious metals are an asset regulated in various ways. Dealers, miners, refiners and financial intermediaries all face regulations depending on where they operate in the world.
LBMA members and bullion banks who purchase and sell on their own account tend to be subject to state laws that regulate them, mandating that dealers keep proper records, provide customers with proof of ownership documents, as well as offer unallocated and allocated accounts – with allocated accounts permitting customers to keep possession of their precious metals while unallocated accounts enable loaning of physical metals from the bullion bank or dealer.
Minnesota dealers must register with the CFTC and report any purchases or sales of precious metals totalling more than $10,000 to avoid money laundering and drug dealing, while checks or bankwire transactions that are paid without borrowing or margin are exempted from reporting requirements.