As gold continues to trade near historic levels, individual investors are looking for ways to participate in Gold’s historic run up. Unfortunately, many of the individuals jumping on board are doing so without doing proper due diligence. According to the Financial Industry Regulatory Authority, more commonly known as FINRA, the largest independent regulator for securities in the U.S., some of the investments individuals are making are outright fraud (source).
While investing in gold is perfectly legal, FINRA advises individuals to use common sense and has laid out some warning signs of possible frauds. These warning signs include but are not limited to:
- Price targets or predictions of swift and exponential growth.
- References to being a “buyout target” for other mining companies.
- Claims that tie stock performance to the general rise in gold prices
- Scare tactics such as the threat of inflation or an economic meltdown
- 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.
These are only a handful of examples. At the same time, FINRA, posted some advise for those who are willing to do a bit of research. Among the advice included the investment in Gold ETFs as it makes a great alternative to gold stocks.
While you may be tempted to invest in a single stock, it is very risky to put all your “golden eggs” in one basket. Investing through a mutual fund or exchange traded fund (ETF) that focuses on gold companies or gold itself can help spread out and potentially lower your risk. Take the time to research fees and other expenses. Review the underlying securities that make up a given fund. You can do so by going to the issuer’s website, reviewing the latest quarterly report showing the fund’s major holdings or, in the case of an ETF, the exchange on which the ETF trades. Research the fund’s manager or management team and read the prospectus carefully, and consider enlisting the help of an investment professional before you invest. (source)
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