The demand for gold and other precious metals increases in times of low interest rates and high price volatilities in securities markets as a result of gold and precious metals being considered a secure store of value. Retail investors and inexperienced investors should however also exercise particular diligence and caution in relation to such kinds of investments. There are also a lot of dubious or even fraudulent providers around even for these apparently safe investments.
What does an investor need to consider when wanting to invest in gold or other precious metals?
As a rule trading in physical commodities like gold and precious metals in the guise of “commodity trading” does not constitute a financial service requiring a licence. Therefore it is neither regulated nor supervised. This also applies to trading and investment in the form of bars (ingots) or coins. This also applies to savings or investment schemes in gold, for which the investor does not take possession of the physical precious metal, but instead only has a claim under contractual law against the delivery of a physical piece of the precious metal concerned.
If the gold is not delivered to the investor on a step-by-step basis against payment, as typically is the case of such investment plans, then this apparently safe form of investment also comes with high risks: on the one hand there are frequently very high associated charges for the management, storage and insurance that are passed on. On the other hand, it is practically impossible to check whether the payment made has actually been used to purchase the precious metal, to store it safely, and whether it is deliverable at any time. Particular care must be taken in the case that the purchaser offers high levels of commission for attracting more investors. This is a strong indication of the suspicion of a prohibited snowball or pyramid scheme (Article 168a StGB) being operated or may even justify the suspicion of fraud (Article 146 StGB).
It is therefore a good idea to exercise particular caution: since the onset of the of the Global Financial Crisis there have already been an increasing number of cases of fraud involving gold savings and investment plans!