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On the weekend the gold
blogosphere picked up on an ABC Bullion blog post about a gold bar cored with five
tungsten rods, including Zero Hedge, Reuters, Screwtape Files, Bullion Baron, and Jo Nova.
The ABC Bullion blog was based
on an email from MKS/PAMP sent to
their distributors about a fake bar that a UK scrap dealer had received. The
dealer thought the bar was suspicious due to a weight discrepancy and as a
result they cut it in half, revealing five tungsten rods inside.
Typically, Zero Hedge over play
the significance of the story with this statement: “So
two documented incidents in two years: isolated? Or indication of the same phenomonenon of precious metal debasement that marked the
declining phase of the Roman empire.” Other bloggers, such
as Felix Salmon of Reuters, have been quick to speculate that such fakes may
be common and present a “serious tail risk for anybody in the
physical-gold market.”
In the experience of The Perth
Mint, such fakes are a rare occurrence. In the 20 years our Refinery Manager
has been working at the Mint, he has never seen a fake bar come through our
operations. If investors buy coins and bars made by reputable refiners and
mints and from a reputable dealer they are highly unlikely to be sold fakes.
Reputable dealers are familiar
with how the common brand name bars and coins should look and thus fakes are
unlikely to be resold. Note that the dealer referred to in the ABC Bullion
story suspected the bar and cut it before it even reached the
refinery.
As to the frequency of fakes,
note that the previous “incident” that Zero Hedge referred to was
this post of January 2010. As I pointed out in
on my personal blog at the time, the Argor
Heraeus video showed a fake bar received more than
ten years prior. So sorry Zero Hedge, this is not two incidents in two years.
Argor Heraeus said that
“counterfeit bars are extremely rare, our colleagues from the foundry
cannot recall a single instance in the last years in which such a bar was
delivered to Heraeus for processing.” This
agrees with The Perth Mint’s experience.
In the retail market turnover of
physical product is relatively high. This is because retail investors do tend
to exhibit herding behaviour, which means when
there is selling it usually overwhelms any retail buying demand at that point
in time. The end result is that in a net selling situation dealers do not sit
on gold due to the high holding costs and uncertainty as to when buying
demand will return, so they liquidate that net selling excess back to
refiners, where it is melted.
Even in the professional market,
which deals in 400oz bars, there is a fair bit of turnover. While central
bank holdings are quite stable, large bars held by private investors are
traded and ownership changes often. As a result, there is a good chance a bar
will eventually be melted for use by a jeweller,
mint or refiner and as such there is a high probability of any fakes being
caught out.
In the case of The Perth Mint,
we melt every non Perth Mint bar and coin we buy back. We also melt a fair
number of our own coins and bars if they are too old or damaged to enable
resale. The point is that with such turnover of physical, the lack of fakes
appearing in our and Heraeus’ operations
indicates to us that fakes are few and far between.
With regard to identification of
fakes, the most reliable non destructive testing
method is ultrasonic and would easily show any insertions. XRF and other
tests generally do not penetrate very far into the surface of a bar, so are
only good for testing plated bars. This link provides an insight into the sort of
testing performed at refineries and for those interested in the technical
aspects here is a quote from KK&S Instruments:
“The 1090 Flaw Detector
allows you to look into the Bar for voids/defects as well as UT velocity
which is determined the products elastic modulus i.e
Tungsten Velocity is 5183-5460m/sec and Gold is 3,240m/sec. For example if
you calibrate for Au then the testing Tungsten bar of the same thickness, the
UT thickness would read approximately half the actual because of the
speeding-up of the sound through the Tungsten.”
GoldMoney also has a good video on the ultrasonic testing they perform on their bars.
Interestingly, they only found ten bars out of 1,377 with “inconclusive
scans were identified but assays of these bars confirmed they contained the
gold content stamped on the bar.” [link] These bars are
400oz professional market bars and is yet more proof that fakes are
not common.
Investors
buying recognised brands from trustworthy dealers
should not have any cause for concern. For those looking for more information
on the various brands and bars and coins available, and what they should look
like and their specifications, this website http://www.goldbarsworldwide.com/ is a good reference site to bookmark.
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