All that glisters…

9th July 2013

Consumer journalist Tony Levene, a gold sceptic, worries about a new sales tactic.

Long term, gold has been crummy. It hit $800 about three decades or so ago so holders have seen annual average gains of 1.5%. And what has happened to the Costa Rica domiciled Aden sisters who famously predicted gold at $3,500 back in 1984? They have been surprisingly quiet of recent times.

But the new cold-callers are sure that gold will zoom back up again and then go to fresh highs well beyond $2,000. And to persuade you to buy, it’s offering the metal at 20% off current prices.

That sound’s like a no-brainer. You buy at $1,000 an ounce and then take the ingot to your local pawnshop/gold buying centre/payday loan emporium and grab an immediate 25% uplift.

So why do the cold-callers offer free money? The small print is revelatory. You don’t get a pocketful of the shiny metal but a “gold participation certificate”, a piece of paper that promises you an ounce of gold for every $1,000 (around £670) you invest. You’ll get the metal in two years’ time – or at once if the price exceeds $2,000 for 14 consecutive days.

Where is this gold to back the certificates? That’s the problem. It is still in the ground somewhere in the wild west of Canada. It has not been mined yet but the sellers tell you they are convinced that every ton of ore extracted will produce gold galore.

And to “help finance exploration”, the promoters are willing to let 35,000 ounces go at a knock-down price to current values. If they succeed, they will pull in $35m.

The “guaranteed backing” for the certificates comes from tax haven firms, often working out of Zurich postboxes. As there are some people who believe that one day, pigs will fly, then gold participation purveyors are on to a very rich future.

The Financial Conduct Authority is deciding whether this “gold still in the ground” deal is a financial future which would require an authorised firm. And authorisation would require real gold, not a promise on a piece of paper. The regulators are looking into these firms and may soon post a warning on their website.

Meanwhile, if it looks too good to be true……..


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