What happens when tons of scams are coming to light? Generally not long before a crash.
Watchdog Warns of Gold Scams
A rash of blogs, websites, YouTube videos and Twitter posts are pushing gold-related investment opportunities that could prove fraudulent, Finra said in a new report. Scammers are also using free lunch seminars to lure victims into giving money to so-called boiler-room operations.
"Con artists are using the run-up in the price of gold as a hook to part investors from their money," investor education Vice President Gerri Walsh said. "Investors should think twice before investing in any gold investment promising exponential returns, or any company that claims it is a buyout target for other mining companies."
The warning to investors comes after surge in gold prices this year, with the yellow metal breaching $1,500, $1,600, $1,700 and $1,800 amid a string of economic and financial-market worries. In recent trading, gold pulled back as investors locked in recent gains.
The most actively traded contract, for December delivery, touched a low of $1,763.80 and was recently down $87.70, or 4.7%, at $1,773.60 a troy ounce on the Comex division of the New York Mercantile Exchange. Thinly traded August-delivery gold fell $89.10, or 4.8%, at $1,769.20 a troy ounce.
Finra cited a recent Securities and Exchange Commission court action against a Florida-based company that allegedly issued news releases touting an Ecuadorian mining project that supposedly has more than $1 billion of reserves. Mining companies' stock value is often based on gold reserves that are difficult to estimate, much less verify, the industry group said.
The Commodity Futures Trading Commission also took three actions against precious-metals firms, including a telemarketing firm that claimed to buy more than $23 million of precious metals for customers.
Finra advised investors to beware of pitches that use scare tactics including the threat of inflation or economic meltdown, makes speculative claims comparing a new reserve's proximity to an existing reserve or describes a company that has changed its name or trading symbol to suggest it trades in gold.
One company that claims to mine gold was originally incorporated to offer golfers time on membership courses, for instance.
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