FINRA Issues Warning on Gold Stock Scams
On August 24, 2011, FINRA issued a new Investor Alert titled "Gold" Stocks—Some Investments Mine Your Pocketbook.” With the price of gold recently hitting an all-time high, the Alert warns investors about a rise in gold related investment scams.
Specifically, FINRA cautioned investors to heed the following warning signs related to gold stocks:
- Price targets or predictions of swift and exponential growth. These predictions often are based on gold reserves, the actual existence and true size of which are next to impossible to verify.
- References to being a “buyout target” for other mining companies.
- Claims that tie stock performance to the general rise in gold prices. A rise in gold prices does not guarantee a rise in the price of a gold company’s stock—there might be little or no correlation between these two things.
- Scare tactics such as the threat of inflation or an economic meltdown. While some investors might hold gold as a hedge against inflation or economic uncertainty, owning a gold stock does not automatically serve that same function. Scare tactics are often used to push an investor to make a quick decision.
- Speculative claims based on a new reserve’s proximity to an existing reserve. A company recently stated in one of its promotional materials that its mining property could be worth “billions in unrecovered gold” based “on the success of its neighbors.” Without more information, such an assertion amounts to little more than idle speculation.
- A change in the company's name or trading symbol to align it more closely with gold.
More information and the full Investor Alert can be found on FINRA’s website, accessible by clicking here.