Informed Investor: Precious Metals and Coin Investments

Tuesday, July 29, 2025 | 09:45am

This blog post is provided through the Tennessee Department of Commerce & Insurance (TDCI) Securities Division in partnership with the North American Securities Administrators Association (NASAA). FINRA (Financial Industry Regulatory Authority), the North American Securities Administrators Association (NASAA), the staff of the SEC’s Office of Investor Education and Advocacy, NFA and the Commodity Futures Trading Commission’s Office of Customer Education and Outreach are raising awareness of the devastating impact social isolation can have on senior investors and offer tips that can help.

During market uncertainty, some investors are tempted to move money into investments perceived as “safe,” like gold, silver, and other precious metals, hoping that a rise in the price of precious metals will offset any losses in stocks and bonds.

Unfortunately, it is a myth that precious metals are safe investments. Like all commodity-focused investments, their prices can fluctuate dramatically. Investors must remember their objectives and realize that precious metals investments are not foolproof and may not provide the desired investment returns. While there may be room in diversified portfolios for precious metals, investors should consider ensuring that precious metals fit their goals.

There are a variety of ways to invest in precious metals, each with its own level of risk.

  • Mutual funds containing precious metals. Although some mutual funds have gold, platinum, or silver in their names, no more than 10 percent of the fund’s assets are invested in the metal itself because mutual funds by law must earn 90% of their income from securities, and commodities are not securities.
  • Stock in precious metal mining companies. Purchasing stock in a precious metal mining company is more volatile than purchasing physical precious metal because of the risks associated with mining. Mining companies’ profits are tied to the metal’s price and operational costs. Beware of “shell” mining companies, which raise investor funds fraudulently and conduct no actual mining. Precious metals as an exchange-traded product. During market uncertainty, some investors are tempted to move money into investments perceived as “safe,” like gold, silver, and other precious metals, hoping that a rise in the price of precious metals will offset any losses in stocks and bonds.
  • Precious Metals Certificates of Deposit (CDs). Precious metal CDs differ from traditional CDs because they are tied to the metal’s price. If the metal’s value decreases, the investor only gets back their principal. The interest rate may vary from a regular CD.

Precious Metal Dealers

When researching precious metals dealers, investors must exercise due diligence.

These dealers often are not registered to provide investment advice or obligated to have investors’ best interests in mind. Commissions and profits drive their recommendations, which may include persuading investors to sell existing investments and purchase coins with high markups and low liquidity.

A precious metals dealer may sell precious metals in different forms, such as:

  • Bullion. Bullion is a highly refined precious metal in the form of coins or bars and has no market value over the melt value of the precious metal. Dealer markups, known as a spread, typically range from 1% to 10%.
  • Numismatic Coins. A numismatic coin’s value is higher than its melt value due to its collectability. Dealer markups can range as high as 30%. There is less liquidity in this market because demand for numismatic coins is lower than for bullion.
  • Semi-numismatic Coins. The sale of semi-numismatic coins has been the subject of several regulatory enforcement actions. Some dealers make misleading claims that semi-numismatic coins are just as collectible as numismatic coins. They fail to disclose that the coins are worth no more than their melt value. Markups range from 25% to over 100% of melt value.

Be Cautious of Self-Directed Individual Retirement Accounts (SDIRAs)

Many securities regulators have seen an increase in complaints about fraudulent investment schemes using SDIRAs, where the SDIRA custodian was used to give an air of credibility to a fraudulent scheme. Similarly, the U.S. Securities and Exchange Commission (SEC) has brought numerous cases in which promoters of fraudulent schemes steered investors to SDIRAs.

SDIRA Custodians Do Not Vet Precious Metals Dealers or Their Sales Practices

Some precious metal dealers push investors into opening an SDIRA account to hold precious metals investments. SDIRA rules permit investors to hold a broader set of assets than is permitted by traditional IRAs. Consequently, investments held in an SDIRA may lack the disclosure and liquidity of more traditional investments, increasing the risk of fraud. A SDIRA owner, not the custodian, is responsible for performing any due diligence on the legitimacy of investments in their account. A SDIRA owner may be surprised when their first statement shows the value of their metals has decreased by the spread taken by the seller – as much as 75%.

Beware of Red Flags for Precious Metals Offers

  • Uses cold calling or unsolicited emails;
  • Uses ads designed to instill fear about the economy in favor of precious metals;
  • Touts political or religious affinity;
  • Creates a false sense of urgency by claiming a limited supply;
  • Advises liquidating pre-existing investments to fund precious metal
  • investments, including through SDIRAs;
  • Encourages financing the purchase through loans; and,
  • Fails to disclose their commissions and fees in writing.

Protect Yourself

  • Ask the dealer about their compensation, qualifications, and how their products meet your financial needs (get their responses in writing);
  • Independently verify the value of the precious metals to be purchased;
  • Get a second opinion about whether investing in precious metals is right for you;
  • Check the background of the firm and the representatives offering to sell precious metals;
  • Compare premiums and fees; and,
  • Research properly valuing precious metals before investing.

The Bottom Line

Investing in precious metals could cause significant losses immediately upon completing the transaction, especially if the dealer takes an exorbitant markup. It is not unusual for the market value of the precious metals to be lower than the value of the other assets investors liquidated to fund their purchase. Do your homework, ask questions. If you have concerns about a precious metals offer, contact your state or provincial securities regulator.

Questions? TDCI’s Securities Division can be reached at (800) 863-9117 or (615) 741-2947 (Monday – Friday, 8:00 a.m. - 4:30 p.m. Central Time) for more information, if you have questions, or if you suspect a securities fraud has occurred. For more information, visit us online.

The Tennessee Securities Division has partnered with NASAA to provide this information as a service to investors. It is neither a legal interpretation nor an indication of a policy position by NASAA or any of its members, the state and provincial securities regulators. If you have questions concerning the meaning or application of a particular state law or rule or regulation, or a NASAA model rule, statement of policy or other materials, please consult with an attorney who specializes in securities law.

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