Gold prices and cash for gold scams rise, stock market tanks

A pile of gold bars

The gold price is soaring as a volatile stock market drives worried investors to gold. Meanwhile cash for gold scams proliferate. Flickr photo.

The gold market has been where the action is for investors lately. As a neurotic stock market and the European debt crisis spur predictions of a global financial meltdown, a vault full of gold is like a dose of Valium for stressed out investors. The spot gold price started at more than $1,200 dollars an ounce Wednesday, as investor fear continued to drive stocks lower. As the Euro tanks and the dollar flutters, European investors and banks around the world want to sink their teeth into gold. And investment gurus like Richard Russell are telling people to avoid the stock market like the plague and buy gold stocks instead.

Cash for gold

The soaring gold price and prolonged economic downturn have brought cash for gold scam artists out of the woodwork. MarketWatch reports that as cash-strapped consumers who rely on quick payday loans sell their gold to pay for everyday necessities, complaints against gold dealers are rising. The biggest offenders, according to the Better Business Bureau’s website (BBB.org), are companies saying they’ll buy gold jewelry and advertising heavily on cable television channels.

Gold market price soars

The gold spot price set a record high on May 12 of $1,241–a jump of 2 percent six days after the stock market Flash Crash. The gold price has risen 34.2 percent since May 2009. But Fortune reports that the current gold market price, when adjusted for inflation, pales from the true peak in 1980, when the gold price hit $825.50 an ounce — $2,180.27 in 2010 dollars. The gold spot price is expected to continue rising as gold stocks provide a hedge against risk in volatile markets. Jeffery Nichols, managing director of American Precious Metal Advisors, told Fortune that the gold market price could reach $1,500 an ounce or higher by the end of the year.

Cash for gold scams

Cash for gold scam artists are taking advantage of the soaring gold price. Some cash for gold companies even build websites with the word “scam” in the address, then swear they are honest. Other sites seek to protect consumers. On cashforgoldscams.com, one consumer complaint says a couple went to pawn shops and got offers up to $350. They wanted more and went to Cash4Gold, which offers a “fast cash” option in which customers waive their right to dispute the amount they receive. Two weeks later the couple received a check for $67.70. The rings, a little over half an ounce of 14K gold, would have been worth about $500.

Cash for gold scam law

WXPI.com reports that U.S. Rep. Anthony Weiner believes that Cash4Gold, one of the biggest advertisers on TV, is systematically ripping off customers. Weiner is proposing legislation that would require companies to give customers bids on the jewelry and force them to return gold by insured mail.

Gold market rises with inflation

Gold stocks are the ultimate hedge against rising prices. Trillions of dollars in government bailouts in the U.S. and Europe add inflation to the current batch of investor fears. The Daily Reckoning reports that not just inflation, but hyperinflation is the monster under the bed as the Federal Reserve floods the economy with free money. The U.S. National debt is already 12.8 trillion, but it rises to $19.1 trillion when it includes the Fannie Mae and Freddie Mac balance sheets. Throw in Social Security, Medicare and Medicaid, the debt is $79.1 trillion — 5.5 times the U.S. GDP of $14.2 trillion.

Expect run on gold to continue

In his latest Dow Theory Letter prediction Tuesday, Richard Russell forecasts a disastrous stock market crash.  Russell advises investors to get out of the stock market altogether, eliminate debt and convert all wealth into liquid assets. Richard Russell’s Dow Theory Letter is taken quite seriously by investors. Chances are his prediction of a stock market crash will encourage a stock market sell-off and a run on cash and gold.

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