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This gold bar is worth its weight in … tungsten — corruption knocks on every door

Posted By Joanne Nova On March 26, 2012 @ 2:15 pm In Monetary History | Comments Disabled

A gold bar that should have weighed 1,000 grams, weighed 2 grams too little. The owner had it cut in half to reveal that the certified, stamped bar with serial numbers had tungsten rods inserted all the way through it. Tungsten, has a density of 19.35 g/cm3, so is a near-perfect match for gold (19.32 g/cm3) and it sells for just one ten thousandth of the price.

The gold bar was cut in half to reveal the tungsten rods.

The problem of fake gold bars

By Felix Salmon
March 25, 2012

You don’t need to be a conspiracy theorist to find this worrying: a 1kg gold bar, certified as 99.98% pure by XRF (X-ray fluorescence) tests, turns out to have been drilled out and largely replaced with tungsten. This bar was discovered only because it was 2 grams lighter than it ought to have been: the forgers failed to add quite enough gold to the outside of the bar to make up for the weight lost when they replaced gold with tungsten. But if they’d gotten the weight right, it would probably still be circulating today.

[Reuters]

Is this a big issue? Who knows? Gold bars are rarely audited.  Indeed even the most respectable bars in the world, the ones the People of the USA own at Fort Knox, haven’t been so much as independently counted, let alone properly audited or even checked for purity. That’s $300 billion dollars of assets no one appears to have audited since 1953. Remember gold is a relic from a bygone era. It is so irrelevant, that at Fort Knox, no one is even allowed to photograph it.

A gold bar of one kilo is worth about $50,000. Tungsten sells for roughly $400 per ton, or $50/kg for ferrotungsten. (No, those numbers don’t match, tungsten is either cheap or very cheap.) In any case, if a crook can replace half a 1kg gold bar with tungsten, they stand to make $20,000. If they do that with a 400 oz bar, “profit” comes in at around a third of a million dollars. For that kind of money I imagine quite a few people might think it was worth learning how to use a gold drill.

The different kind of “perfect” crime?

Is this a new kind of “perfect” crime, where the crime cheats the people, but helps the authorities who are supposed to be stopping it? As I explained in The Ground Zero of Global Corruption – it starts with The Currency – governments can’t print “gold”, but if the price of gold stays lower, then the value of government bonds and currency stays higher — and so ergo — it’s not such an awfully bad thing for most governments if some crooks are “printing gold” (which is effectively what these crooks are doing by creating 1.5 bars out of 1 bar).  I’m not suggesting the governments are doing it, or knowingly supporting it, just that they don’t have much interest in catching these cheats.

If they did want to stop this, they could.

Indeed, just the rumors of fake gold bars adds to the risk for someone buying physical gold. Which might be the point.

The bar in the photo is in the UK, the business that cut it in half, emailed ABC Bullion and other dealers to warn them. I wanted to pass this on as just another example of how corruption is rife and neglect is spreading through the foundations of western wealth. There is a fundamental dishonesty at the core.

The small percentage of people with criminal intent will test every possible weak point in the system.

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UPDATE: Bron Suchecki writes in with information from the Perth Mint that suggests this type of fakery would be picked up if it were common (which is reassuring). The message then, is order your bars from reputable sources. From the comments below:

“XRF does not penetrate very far into the surface of a bar, so is only good for testing plated bars. The industry uses ultrasonic testing, see here http://www.lbma.org.uk/assets/lbmaars2009_14_genel_pamp_use_of_ultrasonic_analysis_for_the_quality_control1.pdf

That Rob Kirby article shouldn’t be given any credence – there is no substantiation or verifiable sources quoted – it is all speculation and conspiracy.

In my comments to this http://blogs.reuters.com/felix-salmon/2012/03/25/the-problem-of-fake-gold-bars/ , which has also picked up on the ABC Bullion story, I make the point that the amount of turnover of bars in the industry makes any systematic fakery impossible:

“In the case of the professional market which deals in 400oz bars, yes many of these sit in central bank vaults but many others are held by private investors and these are traded. There has been no occurrences in my 18 years in the industry, and I haven’t heard of others, of fake 400oz gold bars. Any bar coming out of a LBMA accredited refinery can be trusted because the refinery cannot control or know where the bar will end up and during its life there is a good chance a bar will eventually be melted for use by a jeweller or other refiner and as such there is a high probability of being caught out.

In the retail market I’d guess that turnover is a lot higher, particularly as retail investors do tend to exhibit herding behaviour, which means when there is selling it usually overwhelms retail buyers 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 vs low profit margins and uncertainty as to when buying demand will return, so they liquidate that net selling excess back to refiners, where it is melted. Thus there is a fair bit of turnover and again, a good chance of fakes being detected.”

Every non Perth Mint bar and coin we buy back is melted. We also melt a fair number of our own coins and bars if they are too old or damaged to enable resale.

In the 20 years our refinery manager has been working at the Mint, he has never seen a fake bar. Certainly crooks would not be stupid enough to try and pass off fakes directly to us, but if they were circulating then over time some unwitting third party to whom a fake was sold would eventually sell it back to us, or to a dealer, and thus we’d find out. The fact that this hasn’t happened lead me to believe that it doesn’t happen.

As per my post below, ultrasonic is the non destructive testing method and would easily show any insertions.”

There is a full post about this at The Perth Mint.

“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.”

Jo Notes:

As the credibility of this rests rests on the source of the photographs, it’s notable that ABC Bullion are retailers of gold bars, so it’s not in their interests to spread false rumours. Evidently, they were convinced the source (which they do not name) was respectable. But then, it is –as far as we know — just one bar.

 Title Edit: A few hours after posting I decided a better title than “corruption is everywhere”  is “corruption knocks on every door”.

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