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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 http://www.ngccoin.com/news/viewarticle.aspx?IDArticle=954. 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.

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