IN THE NEWS
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.