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Fraud Is Driving Investors From Precious Metals To Land And Other Real Assets

By Expert Author: Chris Westerman

Real assets – including land – are providing safer haven to investors wary of gold scams.

Gold, silver and other precious metals historically hold unique attraction. But recent experiences with fraud lead investors to other real asset investments.

The soaring price of precious metals, gold and silver in particular, has lured millions of investors from around the globe who are fatigued with poor performance of traditional investments and who regard them as a hedge against economic uncertainty. But just as a hot commodity is attractive for its ability to deliver rapid asset growth, so is it able to attract frauds and scammers.

In mid-2011, the American newspaper South Florida Sun-Sentinel reported that more than 45 companies were selling precious metals in just two counties (Broward and Palm Beach counties) in that state. Because there are no licensing or reporting requirements for that industry, it has been easy for individuals to open up telemarketing and web-based businesses there, doing business around the globe including in the UK. Many of the individuals who run these telemarketing firms have criminal records, and have subsequently been arrested for running Ponzi-scheme operations that collected investor money but never owned the gold they claimed to customers.

This is nothing new. Gold and silver have a long history of investment scams, in part because it has been universally valued for centuries, and because it is highly portable and liquid. On some levels to certain individuals, it can be a wise “safe haven” investment; its meteoric rise in price has exaggerated these notions in the past few years. Individuals who might not invest in traditional stocks or bonds might be lured by aggressive marketing into precious metals investments. Fraudsters use a variety of schemes to get money from investors without actually delivering bricks of the metal, arguing that shipping and security costs would be prohibitive, and claiming that this is the way wealthy investors own gold.

Alternative investments to gold: Real assets, such as land

Economic conditions always drive the long-run returns on all investments. While broad market factors uniformly affect the day-to-day prices of company stocks, for example, those companies’ valuations ultimately are determined by the firms’ abilities to turn a profit. But each of these has their pitfalls as well.

Investors in alternative investments – which range from hedge funds to fine art to raw land, and yes, precious metals – need to be savvy. Consider the ways to win or lose at any of them:

Hedge funds – When they were novel, hedge funds were the province of the rich to (as the name implies) hedge against losses with private, actively managed funds that are designed to deliver a positive return, regardless of market rises and falls. But because these funds are private, they are not as transparent and are thus subject to abuse and fraud. The Bernie Madoff Ponzi scheme was essentially a hedge fund.

Rarities (art, antiques, jewellery, antique cars) – The rise of wealth in China and other countries have driven up prices for many segments of the rarities markets. After all, it’s about increasing demand with a finite number of available goods. But to buy art, antiques, jewellery or cars takes expertise in each category. The new collector is easily fooled.

Land – It’s possible since 2007 to buy real estate on the exchanges through real estate investment trusts (REITs) in the UK, although the nature of the investment almost qualifies it as a traditional versus alternative investment. Compare REITs to buying strategic land, where investors select sites where they are confident a zoning change will enable development to occur. When that happens, the asset value can increase dramatically.

Individuals who are considering land or any other type of investment need to pursue it with care. All investors should work with a personal financial advisor who can independently advise clients on their full investment portfolio – which includes allocating risk among different investment types.

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