Avoid These Common Gold IRA Scams

While a typical individual retirement account (IRA) consists of financial offerings like mutual funds, exchange-traded funds (ETFs), and Treasury bills, a gold IRA includes precious metals.

As good as a gold IRA may sound, they are a rich breeding ground for scammers. Before jumping into one, ensure you know how to recognize -- and avoid -- the most common gold IRA scams.

The unlicensed expert scam

The gold IRA company you turn to to open an IRA may be licensed. However, that doesn't mean that its employees are licensed financial advisors. An unlicensed salesperson has no business giving you financial advice.

According to the Commodity Futures Trading Commission (CFTC), some people who call themselves gold IRA "experts" are nothing more than salespeople trying to get you to purchase as much gold as possible. The goal is not to enrich you or your portfolio, but to earn fat commissions of their own.

According to rules set by the Securities and Exchange Commission (SEC), anyone who offers you investment advice must be a licensed financial advisor. Not only do unlicensed salespeople put your investment account at risk, but they're also breaking the law.

How to avoid this scam: The Financial Industry Regulatory Authority (FINRA) offers tips for ensuring that an investment professional is licensed and qualified to provide advice. The first step is to ask them outright whether they are licensed to sell you a gold IRA. If they say yes, here's how to check them out.

If they tell you they're a registered financial professional, check here:

• FINRA BrokerCheck or call FINRA at 800-289-9999
• Your state securities regulator
• The SEC Action Lookup tool for formal actions that the SEC has brought against them

If they tell you they're an investment adviser, check here:

• FINRA BrokerCheck or call FINRA at 800-289-9999
• The SEC's Investment Adviser Public Disclosure (IAPD) website
• Your state securities regulator
• The SEC Action Lookup tool for any formal actions that the SEC may have brought against this individual

If they're an insurance agent, check here:

• Your state's insurance commission. You can find that information by visiting the National Association of Insurance Commissioners website or calling 866-470-6242

High markup scam

Most gold IRA companies include a markup from the "spot price." The spot price is "the price you buy or sell one ounce of gold for at that precise moment in time." To make a profit, gold IRA companies typically include a markup of around 5% to 10% from the spot price.

This scam involves pressuring people to sell off their current investments and rolling that money into a gold IRA. Then, rather than charging a relatively modest markup, you may be charged more than 100% of the spot price per ounce.

For example, in 2023, the SEC sued Red Rock Secured for marking gold up by as much as 130%.

How to avoid this scam: Look up the spot price of gold before purchasing to ensure you're not getting ripped off. Also, read the small print carefully. According to Consumer Affairs, some companies will tell you that they offer low markups when the reality is quite different.

High-pressure sales scam

Think of the last time someone tried to hurry you into making a decision. When you're pressured to make a decision, it's generally because someone doesn't want you to have time to ask questions, do further research, or carefully consider what that decision could mean for you.

How to avoid this scam: Always take a long beat before making a decision. That means taking time to conduct further investigation. You need evidence that shows a company is legitimate and your money will be well invested.

If you're told that you could miss out on a huge opportunity, take that risk. It's better than losing your retirement funds. Besides, anyone who tries to pressure you into a financial decision is not looking out for your best interests.

The leveraged account scam

Another way scammers seek to separate investors from their money is by "allowing" them to purchase with as little as 20% to 25% down and financing the rest. That way, the scammers get some of your money before refusing to answer your calls.

It's important to know that selling a gold IRA on a leveraged account violates the Commodity Exchange Act, and any company that does so is committing fraud.

How to avoid this scam: Just say no. A legitimate investment firm would never risk breaking the law and would certainly never involve you in its scheme.

Complicating the matter is the fact that gold can be an excellent investment for some, and there are legitimate brokerages selling such investments. It's the scammers who give everyone a bad name.

Ultimately, it's up to you to determine whether you're dealing with a bad player before agreeing to hand over your savings account. The tips we've just covered can help you conduct a personal investigation.