Steadfast FinancesGoldline’s Gold Coin Profit Margin & Tactics Called Into Question

Goldline’s Gold Coins Only Worth Half the Meltdown Value

Filed in Consumer Education , Investing 101 9 comments

Many do not agree with Dylan Ratigan’s politics, but you have to love his outspoken nature when it comes to exposing crooks, corrupt politicians and scam artists.

Today, Goldline International, the maker of outrageously overpriced gold coins (e.g. an average of a 90% markup from melt value of gold in the actual gold coin) found themselves in his cross hairs after a NY Congressman calls for a Federal investigation after reviewing Goldline’s fearmongering tactics and misleading hard sell advertisements.

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Gold Coins & Huge Profit Margins

Look, I could care less about the politics involved in what will obviously be an escalation in a war of words between political pundits and news channels. That’s not why I post such a video since I hate politics with every fiber of my being.

I’m more concerned with people constantly being ripped off by the hard sell advertisers capitalizing on consumer fears, and just like any other fear trade, Goldline is capitalizing on consumers fear just to make a buck. When that fear, or greed in many cases, grows to substantial numbers, it creates herding behavior and can occasionally cause an investment bubble.

I’ve even gone so far to say we’re in a gold bubble (my opinion only), other professional traders have said it’s a gold bubble, but as always, you can buy whatever you want with your own money.

However, I do choose to echo Ratigan’s take home message: if you want to buy gold, gold coins, or other types of physical gold because you fear devaluation in paper (fiat) currency, don’t buy it from someone who charges a significant markup from the meltdown value.

It’s like buying your significant other a 24 carat gold piece of jewelry, paying 24 carat gold prices, but when taking it to the jewelry store to get it cleaned or appraised, you find out it’s only 12 carat gold.

Avoid Getting Ripped Off When Buying Gold

So, if you’re choice is to buy gold, my purely non-professional advice is…

  1. If you want to buy physical gold, silver, or platinum, buy from the United States Mint or from someone you personally know that won’t screw you over. Yes, the U.S. Mint has stopped production on various coins, but at least this way you’re playing it safe. Moreover, I would be highly skeptical of buying gold coins from a cheesy late night infomercial or TV commercial because goodness knows what you’ll get or what it’s actual melted down value will be once your order arrives, much less, what you can sell it for six months later in a pinch.
  2. The easiest way to buy gold is to buy the Gold ETF (NYSE: GLD). It’s one of the more volatile ETFs on the market, but it’s quite possibly the easiest, most convenient, and liquid way of buying or selling gold for the Average Joe investor. It’s not the ideal investment if you want gold in your hand, but still, it’s probably one of the best way to invest in gold if you want something quick and easy.
  3. Buy stock in the gold miners or the gold mining ETF. Buying the gold miners means you’re not only buying gold in their immediate inventory, as well as what they have underground. Buying individual stocks can be risky, so if you want to reduce your risk by diversifying across the entire NYSE Arca Gold Miners Index, the GDX is an easy and liquid way to do it.
  4. Buy a precious metals mutual fund or ETF. If you’re not sure gold is just right for you, and you want to diversify across multiple precious metals, there are numerous precious metal mutual funds and/or ETFs available on the market. Just find whatever you want, do your due diligence, and buy whatever you feel comfortable with.

Much of this isn’t exactly rocket science, and while I admit, advertisers can occasionally push all the right buttons and manage to hit precisely the right fear contagion neurons in all the right orders, but investing out of fear of missing out on big profits or that you’ll be the only guy/gal on your block who doesn’t have a shoebox full of gold coins is exactly the wrong way to invest.

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Posted by CJ   @   19 May 2010 9 comments
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May 19, 2010
11:26 pm

Don’t hate politics. It’s really hard to talk about the market, especially now, without talking about policy. Also, when you talk about gold investing, it’s helpful to add that in the long term, gold investments have not performed as well as stocks or even bonds. Jason Zweig had a good article a couple of months ago on it.

May 20, 2010
11:33 am
#2 Jenna :

How many people actually invest in gold? I’d be interested in some statistics about this?

May 21, 2010
7:44 pm
#3 Matt SF :

Lots of people. Most reputable financial planners and money managers will recommend a small allocation (say 5-10%) of your portfolio should be in precious metals as an inflation hedge, so the number of people who own gold (or silver, platinum, palladium, etc.) is probably huge.

Nowadays, it’s so easy to buy stock in gold (via the Gold ETF ticker symbol GLD), the number has probably grown 10 to 100 fold over the last 5 years.

That said, the reason why I’m so cautious on gold as an investment is that so many people have bought into gold that it’s my purely unprofessional opinion a gold bubble has formed. When that happens, the price can drop quickly, just like in the real estate bubble. Of course, that’s just my own opinion, but the gold coin makers are hyping gold like crazy, as well as trying to hock their products as the greatest thing since sliced bread.

They may be right, of course, but you have to view anyone with a grain of salt who tells you something is a great investment, then offers you a sell you that great investment at a 90% higher price than it’s worth.

Essentially, the price of gold would have to double from it’s current price just for you to make your money back. Not exactly a bargain or value investment from my vantage point, borderline unethical, and definitely worthy of a FTC review.

May 24, 2010
1:57 pm
#4 Jenna :

Interesting. My only experience with people selling gold are those late night commercials, which in general always seem a little sketchy. Will have to spend some more time researching this.

May 20, 2010
11:02 pm
#5 Guy G. :

I had never heard of Goldline before, but we have Harold the jewelery buyer here. I think he rips people off in a similarly sleazy and scare tactic way. Saying the price of gold is high, and that you can sell your used jewelery to him for Cash. People hard up need cash and sell their gold to him at a price I’m sure they don’t know is far below what the market value of that gold is. Well, Thanks for the tips to help me and others prevent getting ripped off.

May 22, 2010
10:06 am

I love the commercials for a mock coin “layered in pure 24K gold” the fine print boasts 30mg gold. Back of napkin, 1oz ~ 30g, so 30mg = 1/1000 oz = $1.20 worth of gold layered on base metal and selling for $20 or more.

May 27, 2010
12:50 pm
#7 Darkesmoke :

I have purchased and sold gold bullion coins for years from a number of different companies. For a 1-ounce gold U.S. Eagle, Goldine charges $50 over the spot price of gold, or a little over 4%. When you sell back, they charge 1% off the spot price of the day. Translated: if gold is $1200 an ounce, they’ll charge you $1250 for the Eagle. Selling it back at, say, $1500 an ounce, Goldline will take a 1% surcharge, or $15, and you get back $1485. Goldline is very competitive in the marketplace. Congressman Weiner is very unstudied on the issue of gold, gold bullion, and numismatic-value coinage. What he did was compare a numismatic collectible gold coin worth $3000 with the gold melt value of $1200 to suggest people are getting “ripped off.” They are not. The Congressman did an apples to oranges comparison and, frankly, looked foolish.

May 27, 2010
1:50 pm
#8 Matt SF :

I would agree Weiner is probably lacking a bit in gold coin education, but I don’t think he looked foolish nor was he comparing apples to oranges in the interviews I’ve seen thus far. Of course, opinions are relative to one’s choice of news media outlet and one’s own personal biases.

However, many of Goldline’s coins (and other gold coin companies cashing in on the gold boom) are being heavily promoted with a gloom & doom sales pitch and questionable high pressure sales tactics for — no surprise — the high profit margin gold coins with a low gold to weight ratio. To try to give some fairness to the issue, that’s why I chose to only use the average markup value of 90% statistic, but at least one had a 200%+ markup.

So that’s probably what needs the most review, and more than likely, where Goldline was taking advantage of the novice gold coin consumer who fell for their sales pitch.

As for their fees, you have to be kidding me! 5% just to be a market maker in this technological day and age? That’s worse than the 1980s when you had to go through a full service broker or pay mutual fund load fees just to be invested in the market.

Ditto on JoeTaxPayer’s Gold ETF testimonial comment as well.

May 27, 2010
1:15 pm

Dark – a gold eagle is bullion, no? 5% round trip (i.e. buy plus sell) cost is no way for the average person to hold gold. Seems a testimonial for the GLD etf.
In your example, gold rose 25%, and customer got an 18.8% return. They lost nearly 25% of their gain to the “house.”

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