Stop! Put Down the Gold and Walk Away
By Staff News & Analysis - August 29, 2011

FINRA Warns Investors To Avoid Gold Stock Scams … The rise in gold prices and interest in the metal and the mining industry has also produced its share of scams, warns the Financial Industry Regulatory Authority, known as FINRA. FINRA is calling its latest investor alert "'Gold' Stocks – Some Investments Mine Your Pocketbooks," in order to warn investors about scams that promote gold stock. The alert aims to provide information on how to invest in legitimate gold investments. FINRA is the largest non-governmental regulator for all securities firms doing business in the U.S. – KITCO

Dominant Social Theme: Gold is a barbarous relic.

Free-Market Analysis: So the US-based Financial Industry Regulatory Authority (FINRA) has decided to warn investors about gold and mining stocks. It had to happen. The powers-that-be don't like gold and silver at all. This is a well-established fact and a fundamental dominant social theme: Don't invest in gold and silver because neither metal provides the promise and futurity of a bluechip stock.

Investors like the famous Warren Buffett (often discussed in these pages) have been especially skeptical about gold and silver as an investment. Buffett, for instance, bought and sold silver in the middle of the first decade of the 2000s and later admitted that he sold too soon.

Indeed, he did, probably leaving millions on the table. Curiously, this does not have an impact on Buffett's reputation as an investment guru though it probably should. Buffett's selling of silver so precipitously simply provides us with evidence that he either does not understand the business cycle or is purposefully ignoring it. And he is not alone.

Yet the business cycle is not something to ignore. The cycle, enunciated by FA Hayek and Ludwig von Mises among Austrian economists, provides us with evidence over and over of its existence and the predictability of its actions.

You won't learn that from FINRA. In fact, the scandal of gold's rise from US$250 at the beginning of the decade to nearly US$2,000 in 2011 should be cause for litigation against numerous financial planners whose fetish for balanced portfolios caused their clients to miss out on gold's tenfold surge. Instead, we get FINRA cautioning about gold scams.

Now granted, many of the companies that purport to be gold and silver miners are nothing of the sort and more akin to outright speculations/promotions. Any amount of reasonable due diligence carried out by an individual should be sufficient to discern between those companies that actually produce gold or have PROVEN gold reserves, and the companies that HOPE to find some of the shiny money metals. It all comes down to investors taking personal responsibility for their decisions and accepting the risks associated with buying any paper-based investment – gold and silver stocks are no exception.

The cycle is perfectly clear and within the parameters of how central banks operate, one can anticipate certain results. During a metals bull market, physical gold and silver rise as the inflationary excesses of the central banking system necessitate a fall in fiat currencies' purchasing power. Then, after investors have secured asset protection to fiat money, many seek to profit from the rise in gold and silver and they do this, traditionally, by buying shares in gold and silver mining companies.

So, gold and silver mining stocks are usually the last to be bid up within this context and analysis of the business cycle. Will that happen in this cycle? There seems to be little doubt that the cycle will continue to operate in this fashion as it has before. However, due to the Internet's ability to shed light on opportunities within seconds, the market itself should likely discern between gold and silver stocks and those that are simply promotions. This tool did not exist during any previous bull market cycle for gold and silver, so it remains to be seen whether investors will rush into the "explorers" or seek to profit from investing in producers and proven reserve holders. Additionally, ETFs provide investors with another profit enabling option which will inevitably affect the flow of profit seeking capital.

Regardless of what the future holds for the business cycle, the mavens at FINRA aren't taking any chances. They are too busy warning people off gold stocks generally and are concerned that mining companies may be trumpeting the decline of the dollar and selling fear.

Investors, FINRA's staff writes, who may be seeking gold investments should be wary of anything that claims to tie stock performance to the general rise in gold prices. Those who use scare tactics such as the threat of inflation or an economic meltdown should be considered suspect.

FINRA's mavens may not be aware of it, but an economic meltdown has already occurred. The Federal Reserve itself has spent out some US$20 trillion in a desperate attempt to ward off a collapse of the system. Such a staggering sum constitutes inflation itself, though price inflation (what FINRA means when it speaks of inflation) has not yet been fully manifested.

Nonetheless, FINRA seems curiously blind to what must be considered the greatest fraud of the new century – that central bankers should be able to conjure up such huge sums of paper-money-from-nothing without facing civil or criminal charges. Propping up the current ruined system in this way is bound to have devastating impacts on people's livelihoods and retirement savings. The ramifications have barely been felt yet.

FINRA's staff evidently is not worried about such results. Instead, the entity warns that people should be wary of mining entities that make "speculative claims based on a new reserve's proximity to an existing reserve, or centers on a company that has changed its name or trading symbol to align it more closely with gold." Here's some more from the article:

FINRA said the scams may focus on inflated claims regarding gold mining companies whose stock value is often based on gold reserves that are difficult to estimate, much less verify. FINRA gave the example of the Securities and Exchange Commission taking legal action against a Florida-based mining company for false press releases claiming that a mining project in Ecuador contained gold reserves worth more than $1 billion.

It also cited SEC action against six people for running a Ponzi scheme using investment seminars to bilk 3,000 investors across the U.S. and Canada out of $300 million. FINRA cited the Commodity Futures Trading Commission's action against three precious metals firms, including a telemarketing "boiler room" operation that purportedly purchased more than $23 million of precious metals for their customers.

"Con artists are using the run-up in the price of gold as a hook to part investors from their money. Investors should think twice before investing in any gold investment promising exponential returns, or any company that claims it is a buyout target for other mining companies," said Gerri Walsh, FINRA's vice president for investor education.

All of this is bad, no doubt. But the real con in the West – and the entire world in fact – is a paper money system of wealth that has divorced fiat money from any underlying value. The phony central banking system that prints money from nothing triggers the business cycle that makes gold and silver inordinately valuable as compared to paper currencies.

As the world's economies inevitably sink into disaster and despair as a result of the overissuance of increasingly worthless "money," agencies like FINRA shall apparently continue to focus on scams of lesser merit. Watching FINRA and others issue warnings about gold and silver scams in the current environment is like watching the Titanic sink while confused passengers are warned about potential delays to the evening's coming buffet.

Scams of any kind are hurtful, but the world's paper money economies are gradually collapsing into chaos. People's entire portfolios and retirement plans will continue to degrade and in some cases disappear entirely. It's happening already. The world's great banking families want a global economy, including a one-world currency and are willing to throw the world's industrial base into disarray to get it.

After Thoughts

This is the real scandal, but it is one that FINRA and other such agencies, private and public, will never focus on. Such larger truths are not available in the mainstream media. Why point out the house is burning down when it is so much easier and more convenient – safer – to point out to people ways to avoid scorching the grass.

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