 Dude, Is That
Gold Bar for Real?
By Doug Hornig,
Sr. Editor, Casey's
Gold & Resource Report
Jan 25, 2010
As the 10-year gold bull continues its
stunning run, rumors of fakery seem to be cropping up as fast
as new Eagles can be minted. Should you be worried? Do you need
to run to the coin shop for a home test kit?
Well, the counterfeiters are out there,
and have been for millennia, but how to counter them?
You probably remember movies about the
Old West, wherein a shady-looking character would offer to exchange
a gold coin for a horse, and the nag's owner would bite down
on the coin. That was about all you could do, if you lacked proper
assaying equipment and had to make a snap judgment on the fly:
depend on your teeth to tell you whether the metal in your hand
was sufficiently soft to be genuine gold.
The bite test is actually a pretty good
one since gold, despite being among the heaviest metals, is also
very soft. If you chomp down and shatter a tooth, it ain't gold.
But does that mean you need to munch your way through your coin
collection? In a word, no.
Not that faking coins would be that hard
to do. This is the 21st century after all, and if there's one
thing we do well, it's making copies of things. Given contemporary
3-D laser imaging, a die could be created that mimicked the real
deal in perfect detail. It's not as if you could hold your coin
up to the light and see the kinds of safeguards built into paper
currency these days.
Predictably enough, counterfeiting concerns
eventually hit the Internet. About a year ago, the blogosphere
bloomed with doomsday warnings after the publication of a series
of articles in Coin World, dealing with the subject of
coin counterfeiting in China, where it's quasi-legal. The Web
was abuzz with the worries of coin holders and eBay shoppers,
as well as the pontifications of pundits about the coming flood
of knockoffs from the far East.
Now that didn't seem right to us. We've
been at this a goodly while, and we've never heard of anyone
being slipped a fake Eagle or Maple Leaf. Just to be on the safe
side, though, we checked with a dealer of 30 years' experience
and got the same answer. Nope. Only seen a couple over the past
three decades.
The thing is, it's really impractical.
Any counterfeit bullion coin would have to be gold in order to
pass. If it were pure, then what would be the point? And if the
counterfeiter skimped on the gold content, the coin's weight
would be a dead giveaway. The only alternative would be to gold-plate
a coin made out of some other metal. But again, getting the weight
right while preserving the correct size would be a challenge.
In the end, there's just not enough of a profit margin to make
it worthwhile.
The exception is rare coins. These can
be made with the proper gold content, then artificially aged
so that only an experienced numismatist could pick them out.
Because of the premium they command, faux rare coins made with
real gold could be highly profitable where a bullion coin would
not.
This is one of the reasons (impartial
grading is the other) why many collectors will only trade coins
graded and slabbed by third-party specialists like Professional
Coin Grading Service (PCGS) or Numismatic Guaranty Corp. (NGC).
Ominously, though, some counterfeit coins
are turning up inside phony slabs, and the graders are taking
the threat seriously. Both the major services have warned about
this, with NGC providing guidelines about how to spot fakes of
their slabs here.
The counterfeits all seem to be originating in China, so one
prudent response would be not to trust rare coins offered for
sale from that country, especially on eBay.
Gold bars are a separate category. Fakes
do show up in the market from time to time, and they're hard
to identify. Generally speaking, counterfeiters don't bother
with the smaller ones, which are stamped, numbered, and sealed.
They concentrate on 1-kilogram or larger sizes. These are poured,
rather than stamped, and can be easily adulterated or even hollowed
out and filled with some other, cheaper metal.
And that's exactly what has happened,
on a massive scale... at least if you believe the rumor that
exploded across the Net late last year, stating that "someone"
in Hong Kong had blown the whistle on thousands of tungsten-filled
400-oz. "gold" bars that are now circulating throughout
the world. Others picked up the story and ran with it, some going
so far as to allege that Fort Knox is filled with 640,000 fakes.
Either because we were duped many years ago, or because the government
deliberately put them there to hide the fact that most of our
gold is gone. Take your pick.
That tungsten was cited as the culprit
is no surprise, because it's the metal of choice if you want
to imitate a big chunk of gold. Put some gold plating on tungsten
and it will fool all the cheap, non-invasive tests, such as specific
gravity, surface conductivity, scratch, and touch stone. For
a conclusive result, you have to drill into the bar, take a core
sample, and submit it to more sophisticated verification techniques
- fire assay, optical emissions spectroscopy, or X-ray fluorescence
- and that involves a lot of time, trouble, and expense.
The market, of course, long ago realized
it would be a hassle to fully assay every large gold bar every
time it changed hands. That would create bottlenecks all over
the place. Thus, to facilitate liquidity and protect large traders,
the London Bullion Market Association (LBMA) came up with the
good-delivery bar system, otherwise known as the "good delivery
circuit."
The system begins with a group of accredited
refiners, all of whom have been certified by equally accredited
assayers. The refiners manufacture the 400-oz. bars, applying
their stamps and serial number before sending them out. Requirements
for making and remaining on the LBMA's good-delivery list are
stringent, and those on it zealously guard their status. It's
of great importance to them because most of the vaults to which
they ship product - the next step in the circuit - won't accept
anything but good-delivery bars.
This thing isn't foolproof, nothing is,
but it ensures a pretty decent paper trail, a formal, recorded
history of who held the bars, when, and in which approved facility
- all the way from refiner to end user, whether that be
an individual, a central bank, or an ETF. No buyer wants something
from a non-accredited seller, and no one else in the chain wants
to get fingered for supplying phony gold. That would get them
kicked out of a very lucrative loop, and sued into the bargain.
What about gold bars that come from a
non-accredited source or are otherwise circulating outside the
good-delivery circuit? That could mean you. You're not part of
the circuit to begin with. And yes, if you bought something that
wasn't good-delivery certified, the possibility that you have
acquired some fake gold exists.
If you're concerned about the source,
you might want to have your gold assayed in order to alleviate
your worries. This will become an issue when you choose to sell.
In that instance, a dealer will almost certainly require an assay
as part of the bargain, even if you have the chain of custody
paperwork and it all checks out. And you can't blame him. There's
no way he can be certain of what you did to it while it was in
your possession. The only exception might be if you have a long-standing,
mutually trusting relationship with him, originally bought it
from him, and are selling it back to him. But even that's no
guarantee. What you most emphatically want to avoid is the worst-case
scenario: arranging a sale, then having your gold flunk an assay,
laying you open to charges of fraud.
If you sell to another private owner,
rather than a dealer, he will surely ask for an assay, and you
shouldn't be offended if he does. Nor should you hesitate for
an instant to demand one if you buy from a private party. Although
this is not a recommended way to acquire gold bars, it may be
possible that something comes along that you can't refuse. Just
be very careful. If someone has a gold bar for sale but is in
too much of a hurry to wait for an assay, walk away.
Your takeaway from all the hoo-hah about
tungsten bars should be that whenever a sensational rumor like
this hits the Internet, and it doesn't immediately graduate to
Bloomberg, you always have to ask why. Financial reporters read
blogs, too. You can be sure they've seen the rumor and asked
the obvious questions: What's the source? Who are the people
who reported the appearance of the tungsten bars named? For that
matter, why aren't they raising holy hell if they've been ripped
off? Where are the lawsuits? No serious journalist who can't
turn up the answers is going to give the story credence.
If it were true, the appearance of several
thousand tungsten bars, for each of which someone has been suckered
into paying a hundred grand or more, this would be big, big news.
It wouldn't stay confined to a few websites for long.
This isn't to say that someone good isn't
digging deeply into this story right now. Nor that they won't
be able to prove it out. It is to say that, more than likely,
the rumor is false.
In summary, there's no reason to believe
that there is a real issue with counterfeit bullion coins at
the moment. That doesn't mean they don't exist, nor does it mean
that evolving technology might not make them more profitable
in the future than they are now. If you're at all worried, simply
deal with someone you trust. Establish a relationship with a
gold dealer who has built a strong reputation, preferably over
a matter of decades. Buy from them even if you stumble across
some mail order supplier who is charging less of a premium.
Some basic guidelines:
For coins, avoid "commemoratives."
Stick with universally recognized government bullion coins (American
Eagle, Canadian Maple Leaf, Austrian Philharmonic, Australian
Kangaroo, South African Krugerrand).
For small bars, purchase only those that
carry the stamp of one of the known, trustworthy refiners, such
as PAMP, Credit Suisse, or Johnson Matthey.
For bigger orders, 1 kilo and up, ask
your dealer if he has an assay or is willing to have one done.
If you want 100 ounces, insist on an assay or consider buying
directly from the Comex, which means you'll be assured of getting
a good-delivery bar that has never left the circuit. And the
Comex will also vault it for you if you like. Do not, under any
circumstances, buy a larger gold bar on the Internet; we'd even
balk at buying coins there unless it was from someone we already
knew.
We don't believe there is reason to be
concerned about bullion coins, but if you are the supremely cautious
type or perhaps already own some commemoratives, there are tests
you can perform at home to check them out.
- First off, you can simply apply a magnet.
Gold is non-magnetic, but if you're unlucky enough to have gold-plated
steel, it'll stick.
.
- Size and weight are good measures. Get
a scale calibrated to hundredths of a gram. If a bullion coin
weighs light (or possibly heavy), it's bogus. Here's a handy
list of the major gold coins with their weights, diameters and
thicknesses:
http://www.onlygold.com/TutorialPages/Coin_specsFulScreenVersion.htm
- Since real gold has a higher specific
gravity than other metals, you can test for that. Many Internet
reference sites will tell you how.
.
- You could buy a commercial counterfeit
detector. They aren't cheap, but will quickly and easily perform
the basic tests.
.
- If you have any suspect, non-governmental
coins and happen to have some nitric acid handy, you can immerse
your coin in the acid. Base metals will react, gold won't. However,
this is not something to try unless you are highly competent
at handling dangerous chemicals; you do not want to test
your skin along with the coin. In addition, of course, if you
do have an alloy coin, the acid will ruin it.
.
- Rare coins are more of a challenge.
If that's where your interest lies, look for specimens that have
been graded and slabbed. Buy from someone you trust. Never
fall for a salesman's pitch that a particular numismatic coin
is a premier investment, sure to double your money. Don't merely
dabble in this area. What's best is if you're in it because coin
collecting becomes a hobby you're passionate about; worst is
if you know and care nothing about what you're buying. Read up
on the subject, examine coins, get to know what the real thing
looks and feels like, learn to spot the kinds of imperfections
that characterize phonies. Become your own expert, or else risk
being the dupe of the day. And if you do decide to pick up something
on your own, send it to NCG or PCGS for grading. You'll quickly
learn whether you've been had.
Precious metals are going to be attractive
to con artists, just like anything else of real value. No question
about it. But there are some decent safeguards already built
into the system. If you supplement them with your own knowledge
and common sense, it shouldn't be difficult to avoid becoming
a victim. And for goodness sake, look after your own interests
and don't fret about what's in Fort Knox. If it truly is full
of tungsten, so much the better for your own holdings.
Right now, gold is off its recent highs...
so, as believers in sound money, the Casey folks are stocking
up on their yellow metal before its price resumes its journey
to the moon. This is the time to learn everything you can about
how and from whom to buy gold, where to safely store it, gold
proxies, and major gold stocks. Get Casey's Gold & Resource
Report for just $39 a year - click
here to learn more.
###
Jan 22, 2010
Casey Archives
321gold Ltd
|
