After the Santa Monica, CA based precious metals dealer Goldline International was accused last week of deceiving customers into buying coins marked up more than 50% over fair market value, debate regarding the bullion and numismatics market dichotomy has heated up in many precious metals circles.
To be sure, this is not the first time Goldline has come under scrutiny, as last year Congressmen grilled Goldline over its mark ups and sales practices. Last summer, Santa Monica authorities disclosed that they were investigating the company.
The attorney who brought the charges forward to the Los Angeles Superior Court claimed that salespeople for Goldline were rewarded with large commissions for selling “collector” coins and reprimanded if they instead made bullion sales.
The attorney’s office said that each charge in the 19-count criminal complaint carries up to one year in jail and fines between $1,000 and $10,000 per offense for the defendants—which includes its CEO, a former CEO, two other executives, and two salespeople. The misdemeanor charges include grand theft by false pretenses, false advertising and conspiracy.
In a statement published by Goldline on their website, Executive Vice President Brian Crumbaker—not named in the complaint—said, “The so-called bait and switch allegation is preposterous because bullion accounts for more than 40% of the ounces of gold sold by the company during the past year.”
However, according to Google search trends for the current calendar year, 2011, if Goldline's bullion to numismatics sales were a true reflection of countrywide trends, the company would be selling eleven-and-a-half times more bullion than numismatics. In the year 2007, the year before the banking crisis, bullion was worldwide searched just six-and-a-half times more than numismatics.
Google Trends For Bullion compared to Numismatics 2011
| bullion || 11.4 |
| numismatics || 1.00 |
Google Trends For Bullion compared to Numismatics 2007
| bullion || 6.55 |
| numismatics || 1.00 |
In a statement to the Wall Street Journal, Crumbaker wrote that “the company’s business practices are appropriate and transparent to its customers. Goldline is the industry leader in its commitment to compliance and disclosure so customers can make informed decisions.”
On the company’s website, Goldline says that a typical spread on Goldline’s most commonly sold bullion coins is 5% to 20%, whilst the spread on “semi-numismatic coins, rare or numismatic coins and rare currency” ranges from 30% to 35%.
On the BBB, Goldline has a rating of F. But, of course, a company cannot appease everybody. Of the factors leading to Goldline having received the lowest possible BBB rating, the following played a role:
10 serious complaint(s) filed against business
Overall complaint history with BBB
Government action(s) against business
The BBB reports that Goldline has made good faith efforts to resolve the complaints brought against them, however rarely does has this resulted in a satisfied customer.
Many talk show hosts have put their reputation on the line in championing the company. Glenn Beck has said in ads that Goldline is “a top-notch organization” and the “only gold company I recommend and use.” Other talk show hosts like Sean Hannity, Laura Ingraham, and Mark Levin, former GOP presidential candidates Mike Huckabee and Fred Thompson, have endorsed Goldline. Goldline has used these talkers credibility to their brand’s advantage.
The old proverb is of the utmost importance in this story: buyer beware. Whenever one buys anything, there is inherent risk, which is why it is so important that the customer informs him or herself of the companies, products and markets with which they plan on engaging, before they engage. Have a chat with the owner, compare the company's prices with similar companies. Beware, however, of companies who advertise attractively, to-good-to-be-true prices, that tack-on a bunch of “commission” fees or additional percentage points under originally undisclosed guises.
Many people enter the precious metals market because they anticipate a further erosion of the international dollar standard. Numismatics, it is argued, offer a means of entering into the precious metals market in such a way whereby, if the world's economic plight were to improve, the collectors premiums on numismatic coins would rise. In this school of thought, the world economy is in the middle of a Great Recession, and in a few years or so we will be seeing our way out of this. Therefore, with premiums on numismatics at historical lows, it would be a great play to enter into that market now in anticipation of stronger premiums in the future; that is, of course, if the economy improves.
Those who are entering the gold market are doing so because they believe that the global economic crisis will worsen, and as fiat currencies across the world lose value, real goods such as food, gas, energy and precious metals will rise. They are not hedging that people will have leisure time enough to inspect rare coins, let alone have the funds to pay for considerable premiums over the precious metal content of the coin.
Big players on the world stage, such as The People's Bank of China, Reserve Bank of India, Goldman Sachs, Barclays Capital, western central banks are buying gold, and they are buying bullion.
Much of the premiums paid on numismatics have no more real value than the premium paid for a Nolan Ryan rookie card. Baseball cards, numismatic coins and other collectors hobbies do well in times of affluence. In times of crisis, however, such items are sold off in monumental quantities in a dash for cash and, ultimately, securer savings, such as gold and silver bullion. Those who take pleasure in collecting coins typically do not have funds to pay the premiums in times of belt-tightening.
For thousands of years gold and silver have not been collector's items. Instead, they have been money, numismatics a hobby. When somebody is looking to purchase gold or silver bullion, they should see the transaction as an exchange—they are exchanging Federal Reserve Notes for gold and silver. The premiums over the spot price of gold, which often cover expensive mining, minting and transportation costs, are a service fee of sorts. People should do research about why they want to enter into the precious metals market, and why they want bullion instead of numismatics. They should also get to know their local dealers.