Congressmen Weiner and Waxman Announce Hearings on TV Gold Dealers

Precious metals investing has always been a very speculative affair, and one fraught with risk for the investor of both price depreciation and unscrupulous dealers. Friday, Rep. Weiner and Rep. Waxman announced a hearing of the Subcommittee on Commerce, Trade, and Consumer Protection set for September 23rd to discuss legislation that would regulate gold-selling companies, an industry whose relentless advertising is now staple of cable television. In the announcement for these hearings Rep. Weiner singles out precious metals dealer Goldline for special attention:

• Goldline Grossly Overcharges For Their Coins

The average Goldline markup was 90% above the melt value of the coin. The largest markup on any coin was 208% above the melt value. Furthermore, the average Goldline markup is 47% higher than better-priced competitors, with some of the company’s markups going as high as 102% compared to its competitors on one of the coins they offered.

• Goldline Falsely Claims To Offer “Good” Investments

By selling gold at twice the melt value, the price of gold would need to double for consumers to break even on their “investment.”

• Goldline Salespeople Misrepresent Their Ability To Give “Investment Advice”

Sales people imply that they are “investment advisors” or “financial advisers” by offering investment advice, which insinuates that they have some sort of fiduciary responsibility to get you the most return on your investment.

However, since they are not licensed investment advisors, they have no such responsibility. In 2006, the Missouri Secretary of States' Office, Securities Division filed formal consent order against Goldline for exactly this reason and recovered over $200k for an elderly consumer that was ripped off.

• Goldline Plays off Public Fears of Government Takeover and Has Formed an Unholy Alliance with Conservative Pundits to Drive a False Narrative

Goldline employs several conservative pundits to act as shills for its’ [sic] precious metal business, including Glenn Beck, Mike Huckabee, Laura Ingraham, and Fred Thompson. By drumming up public fears during financially uncertain times, conservative pundits are able to drive a false narrative. Glenn Beck for example has dedicated entire segments of his program to explaining why the U.S. money supply is destined for hyperinflation with Barack Obama as president. He will often promote the purchase of gold as the only safe investment alternative for consumers who want to safeguard their livelihoods. When the show cuts to commercial break, viewers are treated to an advertisement from Goldline.

“Under this proposed legislation, gold dealers will have a much harder time preying upon the nest eggs of vulnerable consumers,” said Weiner. “It’s shameful that companies like Goldline are able to rip off consumers, use misleading and possibly illegal sales tactics, and deliberately manipulate public fears to sell gold coins at inflated prices.”

There are a number of very curious statements in that press release that go beyond the mere examination of business practices. Since the non-political allegations deal with excessive pricing by Goldline, let's do an informal survey of prices for common bullion coins from some major coin dealers:

Coin	Spot	Goldline	Lear Capital	Kitco	Blanchard
1oz Amer. Gold Eagle	$1,276.20	$1,369.00	$1,333.94	$1,345.86	$1,332.50
1oz Amer. Silver Eagle	$20.80	$29.95	$23.07	$22.89	$23.41

It certainly appears that Goldline is consistently higher on prices than the other coin dealers, but not to the degree indicated in the press release on bullion. However, Goldline also sells numismatic coins, and it is much harder to determine fair pricing on these offerings, which can be significantly higher than the bullion price. Historically, some numismatic coins have also appreciated quite significantly.  If it is numismatic coins that are selling at over 200% of melt value, then Mr. Weiner may be in for an embarrassing public education. But this is a volatile area where the uninitiated should not tread. You can't get a price quote every second of the day, and determining true value is more than problematic.

An $1000 basket of gold mint state rare numismatic coins -- from 1970 to today -- is now worth a stunning $57,977. (Based on the CU Guide at PCGS.com)

For example, a 1/2 oz 2010 American Golden Eagle certified MS-70 can be purchased from Goldline for $1160, while other sites advertise the same grade coin for roughly $750.  It is easy to see how people not versed in the coin market could be talked into paying a significantly higher price for graded coins than the market would bear.  An educated consumer is always the best defense against this kind of practice.

The most serious charge in my mind is that Goldline is misrepresenting their salesmen as "financial advisors." This implies a fiduciary responsibility to the customer.  Many readers will recall this as a central issue in the Goldman Sachs testimony before Congress, and an issue that the Congressmen in that hearing clearly did not understand. I believe this is the issue Goldline is most susceptible on, and much of the rest will just be political theater.

The conclusion of my informal survey is that Goldline's prices are higher than their competitors uniformly across the board, and the rational consumer who does their homework should shop elsewhere.  I can't confirm the claims of this press release, but I assume the Congressmen can back up their statements with more than one example.  When buying from precious metals dealers your guard must be up at all times, and you need independent research to confirm their claims--- caveat emptor.  Don't believe anything they tell you, and don't succumb to high pressure sales tactics.

When the gold bugs are swarming and the airwaves are filled with commercials and doomsday scenarios, it is time to sit on the sidelines.  When the gold bugs are all deflated and you hear very little about the metal, it is time to buy.  Though there are clearly political motives behind these hearings, it is interesting to note that Lear Capital, a sponsor of the Limbaugh radio show, is not called out in the press release.

In closing, here is one of the non-political shills pounding the table for gold by driving a "false narrative:"



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Full Disclosure: The Grouch is not currently a customer of Goldline nor do I intend to be a customer of Goldline in the future. Spot prices of gold are freely available to the public and if I ever choose to buy gold bullion it will be from the company that has the combination of the lowest markup and lowest shipping fees, and one that posts their prices clearly on their website.