Wednesday, February 2, 2011

The Simple Truth About Gold Leverage Programs by Peter Schiff

by Peter Schiff

A lot of peo­ple ride motor­cy­cles, but there’s a rea­son most don’t try to be Evel Knievel. Sure, there’s a big reward if you can land a jump over 14 school buses — but what if you don’t?

A new craze among our com­peti­tors is to push gold buy­ers into “lever­aged accounts.” In one of these accounts, the dealer lends you money to buy gold, on the assump­tion that gold will go up faster than the rate of inter­est on the loan. In other words, if you call with $5K, they’ll give you another $20K in credit to make a $25K total pur­chase of gold bullion.

The sales pitch is that since we all know gold is going up, you might as well max­i­mize your returns by lever­ag­ing up. What they don’t often men­tion is what hap­pens if gold goes through a cor­rec­tion. You’ll likely be asked to send in more cash for a “mar­gin call.” If you don’t, they’ll sell your gold for a sub­stan­tial loss.
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