Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Boris Johnson Hits Coronavirus Panic Button Again, UK Accelertoing Covid-19 Second Wave - 25th Sep 20
Precious Metals Trading Range Doing It’s Job to Confound Bulls and Bears Alike - 25th Sep 20
Gold and Silver Are Still Locked and Loaded… Don't be Out of Ammo - 25th Sep 20
Throwing the golden baby out with the covid bath water - Gold Wins - 25th Sep 20
A Look at the Perilous Psychology of Financial Market Bubbles - 25th Sep 20
Corona Strikes Back In Europe. Will It Boost Gold? - 25th Sep 20
How to Boost the Value of Your Home - 25th Sep 20
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Investors Beware of Gold and Silver Pyramid Schemes

Commodities / Gold and Silver 2011 Feb 02, 2011 - 04:19 AM GMT

By: GoldSilver

Commodities

Best Financial Markets Analysis ArticleJoin silver expert David Morgan of Silver-Investor.com and Michael Maloney in Las Vegas, where the famous Luxor Casino pyramid provides the perfect backdrop for a discussion of the latest gold and silver investment pyramid schemes.

Gold and silver are “honest money,” David says, but “like any financial instrument there’s good and bad in it.” Among the bad: pyramid schemes luring unwary investors with promises of rich profits on silver coins and numismatics.


The basic premise is this, Mike explains: the new investor comes in on the bottom of the pyramid, agreeing to purchase one or two or 10 coins each month at a certain price, which is considerably higher than retail price of the bullion or the collectable premium of the coin. The new investor also brings in two new buyers to join the club. When the two new buyers purchase their coins at the same ridiculously high price, the original investor who recruited them receives a small cut of the profit, and the bulk of the profit gets passed up the line to the top of the pyramid. The idea is that as the investor works his way up the pyramid, his take grows larger and larger, eventually covering the cost of his own monthly coin purchase.

There are several problems with this model, Mike explains. For one thing, “what happens is, there comes an end to every bull market. And 82% of the people that have come in don’t end up breaking even. They end up transferring some of their wealth to the top 18%.”

The “entrepreneurs” who started the pyramid sit at the top, skimming the majority of the profit. “They’re the ones that are really getting wealthy off of this,” Mike says. “Everybody is paying them, and they never go out of the top of this pyramid. They are sitting at the top permanently.”

Bottom line—know what you’re doing, David says.  “Keep it simple, know what you’re buying, pay a fair price to the dealer, start small until you’re comfortable, and go on from there. These types of schemes, to my knowledge, never work out for you. After all, Mike and I are looking out for you.”

What is a Pyramid Scheme?

Pyramid schemes now come in so many forms it makes spotting them difficult though they share in one overriding characteristic. They promise investors huge profits from recruiting others to join their program, rather than proceeds from real investments or sales of goods. Some pyramids claim to sell products, but they often simply use the merchandise to hide their pyramid structure.

There are two telltale signs for these schemes: inventory front-loading plus a lack of retail sales.

Inventory front-loading is when a firm's incentive program forces a recruit to buy loads of products, often at inflated prices. If this occurs in the company’s distribution system, the people at the top of the pyramid reap substantial profits, regardless of the fact that little or no product is sold to the market. While folks at the bottom make excessive payments for inventory which simply accumulates.

Lackluster retail selling is also a red flag that a pyramid exists. Pyramid schemes typically claim their product is selling in huge volume but upon close examination, the sales either occur between people who are inside the pyramid or to new recruits who are joining the pyramid con, not to consumers out in the general public.

In a pyramid scheme, the pitch can be quite seductive as delivery on a high rate of return to a few early investors over a short period of time can produce temporary credibility and testimonials. Yet, pyramid schemes are illegal for a reason… they inevitably must fall apart. When the scheme collapses, most investors find themselves at the bottom, unable to recoup their losses

How to Spot a Pyramid Scheme?

1. Beware of plans with exaggerated earnings claims, especially when there are no underlying product sales or investment profits.

2. Be careful of any plan that offers commissions for recruiting new sellers, particularly when there is no product involved or when there is a distinct, up-front membership fee. Also don’t assume that a presence of products or services, removes all danger.  The Federal Trade Commission has caught pyramids offering investment opportunities, charity benefits, off-shore credit cards, jewelry, women's underclothing, makeups, cleaning supplies, and even energy.

3. If a plan purports to sell a product or service, check to see whether its price is inflated, if new members must buy costly inventory, or whether members make most "sales" to other members instead of the public. If these conditions exist, the purported "sale" of the product or service may simply mask a pyramid scheme that promotes an endless chain of recruiting and inventory loading.

4. Beware of programs that claim to have secret plans, foreign connections or special relationships that are difficult to verify.

5. Beware of any plans that delay meeting its commitments while asking members to hang in there.  Many pyramid schemes advertise that they are in the preliminary launch phase, yet they never can nor do launch for by definition a pyramid scheme can never fulfill its obligations to all its participants. To survive, pyramids need to keep and attract as many members as possible. Thus, promoters try to appeal to a sense of community or solidarity keeping its marketing arm intact, while rebuking outsiders or doubters.

6. Finally, beware of programs that attempt to capitalize on the public's interest in newly deregulated markets or high technology.

Bottom Line: Every investor fantasizes about becoming wealthy overnight, but in fact, getting rich is usually the result of enterprising ideas and hard intelligent work.  If it sounds too good to be true, chances are high that a con is going on.

- Mike Maloney

http://goldsilver.com

Mike Maloney is the owner and founder of GoldSilver.com, an online precious metals dealership that specializes in delivery of gold and silver to a customer's doorstep, arranges for special secured storage, or for placement in one's IRA account. Additionally, GoldSilver.com provides invaluable research and commentary for its clients, assisting them in their wealth building endeavors.

© 2011 Copyright  GoldSilver - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules