Are Gold Dealers Regulated?
Gold dealers may seem like an oversimplification. While precious metals companies, coin dealers, and pawn shops that sell or buy back bullion directly to customers do qualify as dealers in some senses, these entities only deal with other firms within their industry and do not meet all the qualifications of being classified as true dealers.
Regulation for gold can differ considerably between countries. Here are a few suggestions for strengthening oversight:
They Are Not RIAs
Although many coin dealers advertise that bulk purchases of gold can be completed without reporting, this statement can be deceiving. Under federal law, coin dealers who make any cash purchase over $10,000 must notify the IRS of this transaction.
Policy helps prevent money laundering and protects the country against potential economic threats, however dishonest coin dealers and customers often try to bypass this regulation by strategically purchasing coins over multiple days so as to avoid reporting requirements.
Gold dealers market their products through celebrity endorsements and client testimonials that speak directly to older, conservative investors who fear what the current political environment could mean for their retirement savings. Furthermore, ads placed on radio shows such as Sean Hannity or Mark Levin allow dealers to target prospective buyers with hard-nosed sales pitches that include unrevealed markups and fees that are hidden.
They Are Not Regulated by the SEC
Precious metals dealers do not need to register as securities brokers with the SEC or file reports with it; however, they should adhere to both the Commodity Exchange Act and state commodities laws when operating as precious metals dealers. They should publish prices online and require minors who seek purchases to present written authorization from either their parent, guardian or person acting in loco parentis before selling precious metals to them.
Numerous recent enforcement actions involve precious metals dealers that pressure investors into investing physical gold and silver through “Self-Directed Individual Retirement Accounts” (SDIRAs). This type of account allows people to invest in assets beyond what traditional custodians allow; such as real estate, promissory notes, tax lien certificates and private placement investments.
As with most dealers, to determine their trustworthiness it’s often wise to check them with organizations like the Better Business Bureau and U.S. Mint’s searchable database of coin sellers; or use FINRA BrokerCheck and do an Internet search. Investors may wish to inquire further as well regarding experience or past performance from any given seller.
They Are Not Licensed by the State
Gold has long captivated investors’ imaginations and with rising prices has become an attractive target for fraudsters. According to the Federal Trade Commission’s reports of boiler rooms peddling precious metals by using high-pressure sales tactics.
Gold sellers must abide by certain guidelines when selling gold, including disclosing potential conflicts of interest and accurately represent their bullion offerings. Furthermore, they must store their product(s) either in a safe deposit box or financial institution to reduce theft risk.
Some dishonest coin dealers attempt to skirt these requirements by illegally dispersing payments over multiple days, violating state money laundering laws and bank reporting of this transaction to the IRS and potentially leading to criminal charges for both dealer and customer. As per state requirements, licensed dealers must maintain a fixed business address and obtain an use-and-occupancy permit; additionally they are subject to criminal background record checks on employees who will conduct precious metal or pawn transactions for sale or lease.
They Are Not Licensed by the IRS
Many people buy gold as an investment vehicle; others simply wish to own it and keep it out of prying eyes’ reach. Luckily, laws exist which protect private ownership of precious metals.
The government does not mandate that precious metal acquisitions be reported, unless paid for with cash exceeding $10,000, in which case, they must be recorded as “cash reporting transactions.”
If you make multiple purchases within 24 hours using different forms of payment (cash and check), coin dealers must consider these transactions related and report them as related transactions. Customers who attempt to bypass this rule by spreading out payments over several days risk having their bank accounts frozen and criminal charges filed against them.
Gold dealers must file an IRS Form 1099-B for customer sales meeting the minimum quantities established by the IRS, similar to other forms commonly received by taxpayers. Investors should consult a tax professional regarding individual capital gains taxes and bullion sales reporting requirements.
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