Recently, I have heard a lot from my clients talking about investing in Gold. Some of them have bought the Physical Gold years back and saw the value soared and some are regretted not buying and eager to jump into the wagon.

There are some “smart” business people started businesses a few years back to sell people gold with “guaranteed returns”. Companies, such as Genneva Gold and The Gold Label, sells Gold Bullion at a 2% discount to the market price with a buy-back guarantee. To my shock, the scheme seems to be in high demand. I have a client whose friend recently invested in 60kg gold with such company. The value is, based on the current price of US$1,400 per oz, near 3 MILLION US DOLLARS.

Where the scheme might sound too good to be true, it probably is. Such companies were recently placed on the MAS alert list.

Given the soaring gold price, it is very difficult for some people to resist such offer and they simply ignore all the early warnings, such as MAS alert list. One can argue that they are holding physical gold or gold price will never drop in the long run etc.

People are just very forgetful. Lehman Brothers did not collapse overnight in Sep 2008. Their financial trouble was raised as early as 2007, but investors were just saying, Lehman Brothers will never collapse, the same faith with Gold.

Don’t get me wrong. I am not against investing in Gold at all, but you got to be more vigilant when investing your hard-earned money. Diversification is the key.

To me, such a scheme is just using the new money to pay the old clients, the cash flow problem is foreseeable once the trend reverses. After that, there will complain, litigation, liquidation,  people crying about losing their retirement fund, etc. Sounds familiar?

In Alexander Elder’s book “Trading for a Living”, he answered the ultimate question about price:

Price is what the greater fool is ready to pay.

Yes, you may still have the gold. But remember, the gold is just a metal, you need to find another greater fool to pay you in the future.