When considering whether or not to own physical precious metals, one of investors’ primary concerns is whether the dealer, IRA custodian, or depository they’re considering working with might be a scam. Rightfully so. After all, an investor’s primary objective is to preserve and grow the assets they’ve worked a lifetime to accumulate.
We’d like to address some of the common concerns we regularly hear from investors and clarify each one individually.
The Fear of Dealers Running Off with Your Money
The most common fear we hear is that if an investor wires money to a dealer to buy precious metals, the dealer may abscond with the funds.
The reality is this: while there have been isolated incidents, it’s extremely unlikely. The reason is simple: gold is a physical asset—it tangibly exists.
If Mr. Client wires money to a dealer, and the physical asset doesn’t arrive within the agreed time frame (which should generally be no more than 7-10 days), Mr. Client would immediately contact the authorities. Whether it’s the state attorney general, the FTC, the SEC, the CFTC, or the CFPB, there are multiple agencies ready to investigate. The dealer would be shut down almost immediately, would be featured on the evening news, and reports of the incident would be readily available online.
In today’s world, no dealer can receive client funds and fail to deliver metals for any length of time without being exposed as a scam.
Furthermore, consider the economics. How much money would have to be involved for it to be worth it for even a dishonest dealer? Many reputable dealers move over $10 million in precious metals each month. They earn a legitimate income from ongoing, repeat sales.
Ask yourself: At what level would a dealer be willing to forfeit a perpetual, legitimate income stream just to abscond with one client’s money?
Not $25,000. Not $100,000. Not $250,000. Not even $1 million. As soon as the dealer fails to deliver, their business collapses, future income stops, and the principals face prison.
The reality is: there simply isn’t an amount a client could wire to a dealer that would justify sacrificing the entire business.
This is a delicate subject for dealers to navigate. The sums are significant to the client, and no dealer wants to sound dismissive about a client’s life savings. But from the dealer’s broader business perspective, even a $1 million order might represent just 10% or less of the metals they’ll move that month.
Physical Metals Provide Protection Against Scams
It’s worth noting that this very nuance—the fact that precious metals are tangible and must be delivered—acts as a defense against scams.
Think of Bernie Madoff. When you’re buying stocks, bonds, or any paper or digital asset, there’s nothing tangible for the client to see, touch, or hold. Clients wire money to their broker-dealer but rarely see where that money goes. For all the client knows, the broker could be printing phony account statements in their basement while living off client assets.
Paper markets are built entirely on trust in assets the client has never actually seen, except on computer screens or account statements. How do you really know you own them?
How IRA Transactions Work
The delivery requirement also applies to Individual Retirement Accounts (IRAs).
In an IRA, the client’s funds are held by a self-directed IRA custodian, which is a completely separate entity from the dealer. The custodian’s job is to handle the accounting and recordkeeping of assets moving into and out of the IRA, in compliance with IRS rules.
When Mr. Client orders metals from a dealer, it’s actually the IRA custodian who releases funds to the dealer to pay for the order. The custodian then waits for confirmation that physical metals have been delivered.
Once the dealer ships metals to the client’s chosen IRS-approved depository (e.g. Delaware Depository, Brinks, IDS of Texas), the depository thoroughly inspects the incoming shipment to verify both quantity and authenticity. Why? Because once the depository takes possession, they’re liable for it.
If a dealer claims they shipped 50 units but the depository counts only 45, the discrepancy must be resolved immediately. After inspecting and confirming the metals, the depository reports back to the IRA custodian, thus closing the loop and ensuring everything is accounted for.
In an IRA, clients should actually feel more secure because the physical asset isn’t just being delivered—it’s being counted, inspected, and authenticated with tools far more sophisticated than what most individuals have access to themselves.
Checks and Balances
The dealer, IRA custodian, and depository are all separate entities.
We often hear concerns that the precious metals process itself is a scam. That fear usually comes from clients not fully understanding the checks and balances involved. For a precious metals IRA to be a scam, the dealer, custodian, and depository would all have to collude with one another—a highly unlikely scenario because they each have competing interests. Each party operates under separate regulatory oversight and maintains its own business reputation and legal obligations. A custodian is subject to IRS rules and audits, depositories are tightly regulated for security and asset verification, and dealers rely on client trust and industry standing to stay in business. The layers of accountability and independent reporting make coordinated fraud among all three virtually impossible.
Once clients understand how these entities independently verify and record each part of the transaction, they realize it’s a system designed specifically to prevent fraud.
Precious Metals Ownership: A Cultural Shift
We’re sympathetic to clients’ concerns. Owning physical metals can feel foreign if you’ve matured as an investor in a world dominated by paper and digital assets.
There was a time when most people held physical assets and didn’t place their entire financial future in paper investments. People didn’t trust paper—even paper dollars. Over the decades, culture and the financial system shifted dramatically. Now, most retirement and savings accounts exist solely in paper or digital form, while few investors own tangible assets like gold or silver.
So while we understand the discomfort with “returning to real,” most concerns fade once you truly understand the process.
The Bigger Risk: Product and Pricing
Review:
- Dealers are unlikely to fail to deliver.
- Dealers are unlikely to deliver fake precious metals because physical products can be quickly tested and exposed as fake.
In direct delivery, if Mr. Client has gold in hand, he can easily test it himself or take it to any reputable coin shop. If it’s not real, the dealer’s charade collapses instantly, as described above.
The same applies to IRAs. Depositories inspect the metals and won’t sign for or accept responsibility for fakes.
So while fake metals are a theoretical risk, it’s not the most pressing concern.
The far bigger risk investors face is product selection and pricing.
Understanding Bullion vs. Proprietary Products
Every major nation or economic bloc (e.g., the EU) produces standard bullion products—typically gold, silver, platinum, and sometimes palladium. Bullion simply means the product carries no special collector or numismatic value. It’s valued purely for its metal content plus manufacturing and distribution costs.
Governments generally produce bullion in coins. Bullion bars are usually made by private refiners like Pamp Suisse or Johnson Matthey. The term “bullion” has nothing to do with whether it’s a circle coin or a rectangle bar—it simply means it’s a standard product with no special premium or “numismatic” value. Whether a circle, a rectangle, even a triangle, its geometric shape has nothing to do with it.
Why Bullion Matters
An investor looking to diversify or hedge against dollar devaluation only needs true bullion. Whether it’s coins or bars is mostly a matter of preference. This is precisely what we emphasize at Cole Metals Group.
The Bid-Ask Spread
In precious metals—as in stocks, bonds, real estate, or most assets—there’s a bid and an ask price.
- Bid price: what a buyer will pay you.
- Ask price: what a seller charges you.
- The difference is called the bid/ask spread.
Imagine trying to sell your house for $1 million. Buyers might offer $975,000. That’s the bid/ask dynamic. The more buyers competing (bidding), the closer the bids get to your asking price. The fewer the buyers, the more you have to settle for less than you had in mind.
Understanding this is crucial because liquidity and market depth matter enormously in precious metals.
The Danger of Proprietary Coins
This is why Cole Metals Group advocates for bullion from globally recognized mints like the U.S., Canada, Great Britain, Australia, and the EU. These are the most actively traded products worldwide. In any economic turmoil, investors rush toward the most obvious, commonly traded bullion products they know. There are simply more bidders for commonly traded bullion.
Unfortunately, the market is flooded with dealers promoting specialty or proprietary coins. These products are neither standard nor globally recognized.
Some mints operate for-profit centers that produce proprietary coins exclusively for certain dealers. The dealer controls the entire supply, meaning clients can’t easily price-check them online or gauge their real value. There’s no broader market competition for proprietary products because only one dealer sells them.
That dealer can set any ask price they want because no other dealer carries the same product. Worse, many dealers price these proprietary products 25% to 40% above their true market value.
The Illusion of Scarcity
Clients sometimes notice prices for proprietary products seem oddly high compared to standard bullion. Brokers often misrepresent proprietary coins as “scarce”, claim they “perform better”, or are “more private” because they are “not reportable”.
While that sounds flimsy, these dealers are aggressive marketers who use celebrity endorsements and heavy advertising to build trust. Sadly, many clients go along with the broker’s suggestion, doubting their own knowledge but trusting the celebrity spokesperson who they believe wouldn’t steer them wrong.
The Bid Problem
Once a client buys proprietary coins—often unaware of the 25% to 40% bid/ask spread—they find themselves needing gold to rise 33.3% to 66.7% just to break even.
This is not what most clients had in mind when they turned to gold to preserve purchasing power.
That’s also why dealers who push these products often encourage clients to “hold for 3, 5, or 10 years.” If clients tried to sell after just a few weeks, they’d quickly discover their metals are worth far less than they paid.
This is why some investors see gold prices rise 20% or 30%—yet remain underwater—because they were grossly overcharged to begin with.
Proprietary Coins Have No Real Market
Even if a major crisis like COVID created huge demand for gold, that demand wouldn’t spill over into proprietary coins because most investors have never heard of them. How can investors demand something that they don’t know exists?
Wholesalers generally do not want to hold a dealer’s proprietary coins in inventory. If they facilitate a liquidation for a client at all, it’s often at the spot price or less because there’s no resale market. Proprietary coins become a liability because no one else wants them. The only option the wholesaler would have would be to melt them down for their scrap value, which itself has costs, and further reduces the client’s bid upon liquidation.
When the client wants to sell, the dealer isn’t going to buy them back at the original price, either. That would mean returning the 25-40% commission already spent by the broker. Instead, the dealer offers a far lower bid, often just slightly above melt value.
This is the 10-ton pink elephant in the room—the reason investors should avoid specialty or proprietary coins at their first mention.
Remember the IRA Custodian’s Role
It’s important to remember that neither the IRA custodian nor the depository is responsible for verifying whether you paid a fair price. They record what you bought, safeguard the metals, and verify authenticity. But price and product selection are entirely your responsibility.
Your best defense is to buy only commonly traded bullion products that you can easily price-check online. This ensures you know whether the price you’re being offered is fair, high, or low.
Avoiding The True Gold “Scam”
In conclusion, when people talk about gold “scams,” the good news is that risks around delivery and reporting—whether for IRAs or direct delivery—do exist but are more rare than generally believed.
The far bigger, glaring, and ever-present risk is being sold an overpriced product that could take years—if not decades—to recover from.
