JUST SAY NO TO LEVERAGED METALS! The leveraging of precious metals became popular in the 1970’s and early1980’s as commodities went through a major growth cycle. Leveraging is the process of investing a small down payment against a hard asset that can be used as collateral for a loan. Most people understand that real-estate is commonly considered a leveraged investment. When an investor purchases real-estate for example, a small deposit is put down against property through a “Deed of Trust”. A note is then carried by the selling party or party’s agent, secured against the deed, i.e. title to the property. As long as the contract terms are followed, the property rights transfer to the investor and all is well. In real-estate leveraging, the investor has use of the property and can then use that property to generate income and/or long term equity growth. Foreclosure occurs when the buyer/investor defaults on his payment obligations and the lender retakes active control of the property. Metals leveraging is similar but has less benefit. In leveraged metals, you do not have the asset in hand as you would with real-estate. You have effectively handed over the metal to a pawnshop and will lose all of your investment if you do not follow the exact terms required. Your worst case risk is: 1. A one hundred percent loss of the down payment. 2. Repossession of the asset. 3. Potential liability of up to its fully encumbered value, plus fees. 4. A run on the metals vault and a delay in delivery of your asset. 5. The potential of your stored asset being held up from liquidation or delivery if there is a bankruptcy or class action suit filed against the dealer. The Hunt Brothers became notorious in the 80’s after it became public knowledge that they were attempting to corner the silver market. They used several leveraging techniques to expand their control and discovered that futures contracts were very effective, when used to control commodities. In addition to owning futures contracts they were exposed to commodity loan obligations and exponential risk derived from pyramiding profits, a technique that takes increasing equity and uses it as collateral to purchase more leverage commodities. As the Hunt Brothers began their conquest of the Silver market, the Leveraged Metals dealers and the Futures dealers began to compete for the same clientele in trying to exploit the new exuberance in the shiny stuff! Both methods are extremely precarious but the leveraged method exposes investors with more potential risk due to the possibility of being required to put in additional money after foreclosure has occurred. If the equity becomes negative before the lender can force the liquidation of the collateralized commodity unsophisticated investors are often required to declare bankruptcy when their leveraged obligations get out of hand. They usually do not realize the full risk they had assumed until they are served by aggressive legal action for their defaulted obligations. In the end, the Hunt brothers, speculators and many brokerage firms, in both the precious metals futures and the leveraged metals accounts lost heavily. The government strategically changed the rules of the game and every investor “Long futures” or “Long leveraged,” paid an awful price. The Hunts ended up owing millions on the loans they took out. Collection attorneys were sent to recover the leveraged funds from private investors that did not meet margin calls. In the 80’s silver bubble, the Hunts were not the only losers. Thousands of silver investors lost everything. Many were shocked to learn that the massive one day drop in silver, “Silver Thursday,” overwhelmed the system and margin calls were not able to be made. Forced liquidations occurred too late to keep investors from massive commodity loan obligations. People who had originally leveraged with only a few thousand dollars, potentially (after pyramiding profits), became obligated to pay back millions! The lesson here is that most investors should find other ways to make money in Silver, Gold, Platinum, or Palladium than using leveraged futures and commodities. With the advent of the ETF (Exchange Traded Fund) Leveraged metals accounts have become obsolete and dangerous. Metals investing should be used in a portfolio for insurance against monetary collapse or inflation protection and not as a get rich scheme! History has taught us that long term accumulation and dollar cost averaging is the wisest way to invest in the volatile metals market. If you can-not stomach unlimited financial risk then consider the following precious metals investment ideas. Method One. - Buy bullion and coins on a fully paid basis - Recognize the commissions, spreads and premiums on these products may reduce your ability to break even for several months or years. Method Two. - Buy pre-1933 gold coins for exponential growth from scarcity and antiquity coupled with the bullion value. - These coins have been declared exempt from government confiscation in the past. - Large amounts of wealth can be housed in a small package. Method Three. - Purchase a mutual fund for as little as $100. - Usually the funds contain gold mining co’s and not the gold in the portfolio. Method Four. - Purchase Stock Exchange Traded metals via. ETF investing. - This is a low-cost and highly liquid metals investment. - Commissions and spreads are very reasonable - These ETF programs are regulated securities and have SEC oversight that plain metals storage programs may not be required to have. Method Five. - Using a metals storage vault or trust company to hold your metals. - Many storage co’s are also brokers or dealers and have massive fees or have other motives for offering a storage program. - Assets in storage may be not always be in the form you suspect. - Assets in storage may be fungible which means that the storage vault is only required to keep assets in aggregate and not specific. Some people rumor that futures contracts could be used as coverage and that the actual metal held is only a fractional reserve used for delivery. To learn more about the dangers of leveraged investing and which firms are trying to bait you into that trap, call us now! (888) 399-4690 Thank You!