 Casey Files:
All That Glitters is NOT
Gold:
the truth about counterfeit gold
Doug Hornig
Editor, BIG
GOLD
May 11, 2009
The Chinese Fake It
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 seller would bite
down on the coin to verify its authenticity. That was about all
you could do if you lacked proper assaying equipment and had
to make a snap judgment: 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 before you go munching on your coin collection,
you might want to ask yourself, why bother?
Well, because of the Internet.
While the Net has become an indispensable resource and we'd never
want to return to the days when basic research meant a long day
in the library, it also has the ability to stir up a hornet's
nest of concern at the drop of a stick.
One such hornet release followed
the recent publication of a three-part series by Coin World,
dealing with the subject of coin counterfeiting in China, where
it's quasi-legal. Instantly, the Web was buzzing with the worries
of bloggers and eBay shoppers, and the pontifications of pundits
about this dire threat.
Before we got too worked up
about it, first thing we did was carefully read the source material.
Yes, the Coin World articles raise the issue, and they
feature an in-depth interview with one Chinese counterfeiter,
although that's not what he calls himself. He's a proud artisan
who produces replicas.
Of what? As it turns out, it's
primarily copies of ancient Chinese coins, which are sold to
tourists. A few fake U.S. silver dollars are put up each week
on eBay, but they are required to carry a Replica stamp.
Do all Chinese counterfeiters
abide by this regulation? Perhaps not. But eBay has always been
a place where caveat emptor rules, so the best policy
would probably be simply to avoid coin purchases from China.
Problem Areas
Next, we consulted with our
favorite dealer, asking if they come across many fake bullion
coins, such as Eagles or Maple Leafs. The answer was no.
They've only seen a handful during their thirty years in business.
Not that it's hard to do. With
modern 3-D laser imaging, a die can be created that mimics the
real thing in perfect detail. The good news is that it's impractical.
The difficulty is that any counterfeit bullion coin would likely
have to be gold in order to pass. If it were pure, then the profit
margin would be too small to make the deal worthwhile. 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.
Which brings us to the areas
where counterfeiting can be a real problem. The most significant
is rare coins. These can be made with the proper gold (or silver)
content, then artificially aged so that only an experienced numismatist
could pick them out. Because of the premium they command, rare
coins made with real gold would be highly profitable where a
bullion coin would not.
This is one of the reasons
(disinterested 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. If you collect rare
coins and have any reason to suspect them, it's pretty easy to
sort the real slabs from the fakes. Coin World provides
illustrations on just how to do that here.
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required]
Gold bars are a different matter.
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, our dealers tell us, on 1-kilogram or larger
sizes. These are poured, rather than stamped, and can be easily
adulterated or even hollowed out and filled with lead or some
other metal. Compounding the problem is a lack of standard weights,
even among good delivery gold bars. The "400-ounce"
bar, for example, can vary anywhere from 390 ounces to 420.
How to Protect Yourself
As noted, we don't believe
that there is a serious issue with counterfeit bullion coins
at the moment. But that doesn't mean that they don't exist, nor
does it mean that evolving technology might not make them more
profitable in the future than they are now.
The best precaution is the
simplest: deal with someone you trust. Establish a relationship
with a coin dealer who has built a strong reputation, preferably
over a matter of decades, such as the dealers we recommend in
BIG
GOLD. Buy from them, even if you stumble across some mail
order supplier who is charging less of a premium.
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,
ask your dealer if they do assays. Reputable outfits generally
assay bars that are a kilogram or larger. If you want a 100-ounce
bar, consider buying direct from the Comex, which will also vault
it for you. That removes the assay requirement when you buy,
but remember that if you take physical delivery of a large bar,
you'll need an assay when you sell. Do not, under any circumstances,
buy a larger gold bar on the Internet or from a private seller
you don't personally know.
If you're still worried about
a coin, there are tests you can perform to check it out.
- For gold, you can bite it,
although you may not want to mar the surface of the real thing.
Silver coins you can drop on the floor and they will ring; alloys
won't. The ring test is less useful with gold, since 24-karat
gold doesn't ring; less than 22 karats does, but so does brass.
.
- Size and weight are good measures.
Make a list of the diameters of genuine coins for comparison
purposes. 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 gold coins with all weights, diameters and
thicknesses.
.
- A good counterfeiter may be
able to get all other aspects of an adulterated coin right, but
he won't be able to fake density. Gold has a higher specific
gravity than other metals, and 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 test for weight, thickness, and diameter.
.
- If you happen to have some
nitric acid and are a very careful person, you can drop your
coin into a beakerful. Base metals will react, gold won't.
.
- Rare coins are more of a challenge.
If that's where your interest lies, look for specimens that have
been graded and slabbed. Otherwise, there's no substitute for
experience. Examine coins with a magnifying glass, heft them
in your hand. Get to know what the real deal looks and feels
like. Read up on the kinds of imperfections that characterize
the phonies. Become your own expert.
Precious metals are going to
be attractive to con artists, just like anything else of real
value. But there are some decent safeguards already built into
the system. Supplement them with your own knowledge and common
sense, and it shouldn't be difficult to avoid becoming a victim.
Good thing you don't really
have to worry about purchasing fake bullion coins because it's
the best time to buy gold, and maybe one of the last chances
you get to buy at $800+ levels. Read our report on why ultra-low
interest rates could make gold rise to $1,500 (and higher) in
the near future - and how you can profit: Click
here to learn more.
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