Monday, January 20, 2014

Real gold? Are you sure? An examination of modern gold counterfeiting


Stacks of gold bars stored in the bank of England (from the Daily Mail). An impressive display of wealth, with only one small problem: can we be completely sure that all that glitters is real gold?



In life, I've discovered that there exist laws describing human behavior that seem to be as strong and inflexible as the laws of physics. One, that I call the "second law," says that if there is a chance to cheat, someone will (the first law is the well known one, "there ain't no such a thing as a free lunch). The second law of human behavior may hold in particular with the ancient human activity called "counterfeiting", in particular of money and precious metals.

The advantage of gold as currency has always been that it was very difficult to counterfeit. From the time when Archimedes screamed "Eureka!" in his bathtub because he had found a way to test the gold content of his king's crown, it was known that gold was much denser than anything else known. So, a good scale was all what was needed to discover if something was real gold, or it just glittered like gold.

But, today, things have changed: we have something that ancient gold counterfeiters couldn't even dream of: tungsten with a density almost exactly the same as that of gold and that makes density measurements nearly useless. Since gold costs almost a thousand times more than tungsten (ca. $ 40,000 per kg against about $ 50 per kg) you can understand that there is a lot of incentive for the second law to play a role, here: with a chance to cheat, someone will.

I spent some time looking into this matter and I can tell you that, yes, there may be problems with gold counterfeiting with tungsten nowadays (in minor measure, also with silver). Not so bad as some people say, but not to be underestimated.  There follows what I found - it is based on some 30 years of experience in materials science, but it doesn't claim to be the last word on the subject. If you know more details or you have different data, let me know. One of the things that I have learned in life (in addition to the second law of human behavior) is that you never finish learning.



1. Counterfeiting gold bullion.

The term "bullion" applies to nearly 100% pure (or "100% fineness") gold. Bullion ingots and bars come in different sizes: the typical kind traded between banks or governments comes in the "400 oz." size (corresponding to 12.4 kg). One such bar is worth today around half a million dollars. Ordinary people won't normally ever see one such bar, except in pictures. But gold bullion is commercialized in variable sizes and there exist much smaller ones, for instance ingots as small as just one gram. Dealers and goldsmiths also trade gold in the form of non standard bars or of foil, wire, and grains. In all cases, assaying methods are normally able to determine the fineness of the gold, but tricks with tungsten are possible and sometimes not easily detectable. There are two of these tricks, both are reported to have been actually used.

Gold plated tungsten bars and ingots. The start is with a pure tungsten bar. Such bars need special equipment to be made, but seem to be available on the market, although it seems that counterfeiters also use tungsten carbide (TiC) or "Tungsten Heavy Alloy" (WHA). These materials are almost as dense as pure tungsten, but easier to manufacture by powder sintering in the form of massive bars. Then, counterfeiters wrap the tungsten in gold foil 1-2 mm thick and then weld the two contacting surfaces by high temperature treatment. It is also necessary to treat the object in such a way to remove the "seam" were the edges of the wrapping foil touch each other, but that can be done with good welding skills. The final result is an object that is pure gold in the first few mm, but pure tungsten (perhaps carbide) below. The gold layer is thick enough that it can be stamped and punched as if it were solid gold all the way inside. Apparently, you can also buy these gold plated bars already made! The final result can mislead even experts if they limit themselves to visual examination and weighing. Also, the gold plating is thick enough that it makes the underlying tungsten undetectable to most common assaying methods such as X-ray fluorescence. There are only a few ways to detect the scam. Ultrasonic testing should work, although it may not be enough. Then, if the tungsten is in the form of carbide or WHA, it could be detected by a strong magnet, since both contain small amounts of magnetic metals (typically nickel), but the magnet would detect nothing if the tungsten is in pure metallic form. In practice, the only way to be sure of the scam is by drilling a hole in the object. That will immediately reveal the hard and dark colored tungsten inside. For a report of this counterfeiting method having been actually used, see here 

Tungsten bars buried in gold ingots/bars. It is done by inserting one or more tungsten bars/billets in a gold ingot or bar. It can be done while the gold is being melted in a crucible, or it can be done drilling a hole in the gold ingot, hammering in the tungsten bar, then plugging the hole with a pure gold plug and welding everything in order to obtain a smooth surface. In this case, the tungsten may be only a fraction of the gold, nevertheless it provides a nice profit for the scammer who has succeeded, in a way, in the feat of transforming a vile metal into gold. This trick is very difficult to detect because even drilling a hole in the ingot doesn't guarantee to find the foreign object inside. You need to slice the ingot salami style, or remelt it. However, ultrasonic examination will immediately detect that there is something wrong inside. For a report of this counterfeiting method having been used, see here.

2.  Counterfeited gold coins.  

Gold coins are a popular form of gold trading, diffuse among private owners. Their weight may go between 1 oz to 1/10 oz. They are rarely pure gold because they would be too soft, more typically they contain slightly more than 90% gold in weight, that is they rate as "22 carats".

There are standard and well known ways to counterfeit gold coins: the substrate can be made in brass or silver and then coated with a thin layer of gold - it can be done electrochemically. These fake coins are easily detected simply by weighing them: brass and silver are much less dense than gold. But, as I said before, tungsten has the same weight of pure gold, so if the substrate is in tungsten, weighing is useless to detect the scam. The problem, here, is how to manufacture a believable tungsten coin to be later coated with gold. Metallic tungsten is extremely hard - stamping a tungsten disk with an ordinary press simply wouldn't work. Perhaps it could be done with special and expensive equipment and maybe by hot-forming tungsten carbide or WHA. Both methods would be very expensive and require remarkable expertise. However, assuming that it could be done, the tungsten coins could be electroplated with gold and would have the right weight for a real gold coin. The trick could be detected only by expensive equipment such as X-ray diffraction. At home, the scam could be detected only by scratching the surface with a file to see the dark color below. But that could also ruin a perfectly good coin.

Do such coins actually exist? I think not. I searched the Web but there is no hard evidence of real tungsten coins anywhere. Sure, there are web sites which purportedly sell you gold plated tungsten coins. But I just don't believe that: what gives the game away, in my opinion, is that they only sell already plated coins. They don't even show pictures of the coins before plating. If they had unplated tungsten coins, they should be happy to sell them to people who would then plate them at home - that's the easy part (and possibly the illegal one) of the counterfeiting job. So, if you shell out the $1000 (the minimum that I found is needed) to buy the advertised coins, then you'll probably receive just the ordinary kind of gold plated brass coins. Of course, you would complain. Sure, and then?

On the whole, I think that gold plated tungsten coins are just a legend and not something to be worried about; at least for the time being.

3. Fake Jewellery. 

Jewels come in a wide variety of shapes; rarely at grades higher than 18 carats (75% gold in weight). Since there are so many varieties and so few standards, it is with jewels that counterfeiters have traditionally found their favorite playground. There are zillions of ways to make fake gold jewels and counterfeiters are helped by the fact that often we have composite objects for which it is difficult to make precise density measurements. Nevertheless, in some cases, such as for a simple ring, it is possible to tell if a jewel is gold plated brass or silver simply by weighing it and measuring its density. The problem is, again, with a tungsten substrate. Weighing, in this case, is useless.

Here, I think scams could exist. Search in the Web for "tungsten jewelry" and you'll find many companies selling you tungsten jewels, especially in the form of rings (actually, they are usually made in tungsten carbide). These jewels are real: they are shown in pictures and there are reports of people having bought them. Of course, there is nothing illegal in selling tungsten carbide rings and bracelets; although most of us would find them a little dull. The problem is that someone could plate them with gold and sell them as if they were pure gold. The weight would be the right one for 18 carats gold and even experts could be fooled. I wouldn't be surprised if it were actually done (remember the second law of human behavior!). However, for the time being, there don't seem to exist reports of people having been sold gold plated tungsten jewelry as it were real gold. It may be because it is still a new idea. In this case, we'll see such reports appearing soon. 


5. Silver counterfeiting

All what I was saying about gold can be said for silver as well. Traditionally, silver coins and bullion have been counterfeited using brass as substrate. But the scam is easily detected using a scale. So, in modern times, counterfeiters could use molybdenum rather than tungsten, as molybdenum ("moly", for friends) has about the same density as silver. Also here, it is probably possible to make fake silver ingots, bars, coins and jewels with the same technologies described for gold. The problem for the counterfeiter is that the monetary gain is much smaller: silver is worth much less than gold, while moly still costs about 1/10 of silver by weight. So, it is not obvious that all the work and the effort to replace silver with moly is worthwhile. Since there are no reliable reports of this kind of scam being actually done, I think it must be very rare - if it exists at all. So far, silver seems to be relatively safe.


6 - Defending yourself from gold and silver scams.

The defense against the kind of scams we have been discussing here depends on who you are and on what kind of resources you have. If you are a bank, you probably already have expensive and sophisticated gold assaying equipment and you feel safe (but don't forget the second law!). If you are a mafia boss, you know what to do with the cheaters who sold you counterfeited gold. If you are an ordinary person, however, you can't afford sophisticated equipment and you don't have henchmen who'll send the cheater to sleep with the fishes. You have to do your best with simple equipment and good common sense. In this case, I think I can suggest the following:

1. Buy thin. Thin objects (such as coins or small ingots) are difficult (and probably impossible) to fake with tungsten and molybdenum. That will defend you from most of the modern scams we have been discussing here.

2. Learn how to measure density. It is easy (see, e.g., here) and all what you need is a good electronic scale that will cost you less than $ 50. You can also use scales specifically designed to test gold coins. These methods can't detect tungsten, but they will defend you from old style scams (brass in the place of silver and silver in the place of gold). Note, however, that these measurements become difficult for very small objects, let's say under 5 grams.

3. Get a strong magnet to test your gold - it is a good idea in particular for jewelry. You can buy extra-strong rare earth magnets for a few dollars over the Web. If your gold doesn't stick to the magnet, that doesn't necessarily mean it is real gold but if it does surely there is something badly wrong with it. This test should reveal scams done with steel and also with tungsten carbide or WHA, which contain magnetic elements such as nickel. (silver is a somewhat different matter, as it is slightly attracted by strong magnetic fields)

4. Never forget the second law of human behavior: "if there is a chance to cheat, someone will."


7. Large scale counterfeiting

On the whole, it seems that there is little to be worried about for an ordinary person who buys small amounts of precious metals, especially if one takes some elementary precautions. However, this story leaves us with the impression that, with the advent of tungsten, gold has lost some of its glitter.

The problem is that the temptation of faking a large gold bar is strong: replacing a 300 or 400 oz bar with one in tungsten means making a few hundred thousand dollars with a relatively modest effort. And the scam is difficult to detect: if the bar rests in the vault of a bank or of a government facility, it may well stay there for decades before anyone will test it in ways that could detect the tungsten inside. Not surprisingly, it has been done; even at the level of National Banks. I have also reports from sources which I consider reliable in the gold industry telling me that the actual cases of tungsten scams are much more common than it would seem from what the media report. Yes, there are nice rules that should prevent such occurrences, such as the Gold Good Delivery standard. But all certifications are made by people, and people can be corrupted - especially when we are talking of millions of dollars. Remember the second law of human behavior: "if there is a chance to cheat, someone will"

Does that mean that, as some people said, the gold bars stored in Fort Knox are all in tungsten? Well, I think not, but pause just a moment to think: if they were fake, how would we know?











19 comments:

  1. Suppose that 50% of the Gold in Fort Knox is really tungsten but nobody knows that. Would it make any difference? And is it better to find out or better not to know? (If one's wife has been unfaithful -and one cares about such things- does one really want to know and might it not be better for conjugal harmony if one did NOT know, or perhaps were only told later after one got divorced for some other reasons?) (perhaps equivalent in some minds to buying the fake gold but selling it on before anyone else including oneself found out) Naturally if there is DOUBT then there is no trust, and if there is no trust then things like paper money become worthless. And probably the same would be true for gold. (even if in fact it were all "100% real Au")

    Maybe a good way to crash Central Banks (and the entire world economy together with them) would be to start saying over and over in the media that most of the gold they have, or think they have, or say they have, is really tungsten. If enough people believe it, it may as well be true. And isn't that the way propaganda works too?

    For fun I also looked up the density of gold and the density of tungsten with Google (and so they may not be accurate) (I don't have a chemistry text handy). But the density of gold was given as 19.32 grams per centimeter cubed and the one for tungsten as 19.25. If that is correct that would be a difference of .07 gm/ cm3. For a 400 ounce or 12Kg (12000 gm/ 19.32 gm = (roughly) 621 cm3) bar the difference in weight shouldn't be that difficult to detect with a sensitive scale? The tungsten would weigh 621 x 19.25 = 11,954 grams and the gold would weigh 621 x 19.32 or 12,000 grams. And the exact volume of the bar could be measured by the displacement of a liquid. (an exactly 12 Kg. bar of tungsten would need to have a slightly bigger volume than the 621 cm3 calculated above for a 12 kg. bar of gold. So maybe the answer is to buy only several half million dollar 400 ounce bars and both weigh them on a good scale and drop them in some water to see how big they really are? Or alternatively to buy a grotesquely overpriced apartment in Hong Kong?

    But perhaps more important or interesting would be to add to the second law of cheating that you correctly and appropriately mentioned several times above, also other typical human laws of illusion and delusion as to the "real worth" of things which are other forms of deception based on self-deception as well as on the deception of others. And so which ultimately is better the illusion of a delusion or the delusion of an illusion?

    But more seriously it is pretty difficult to "store value" with any certainty. Gold could be fake, stocks and bonds could crash, property could be heavily taxed by greedy governments, or even nationalized, or the state itself could "fail"...and super expensive works of art may lose their value once hyper rich buyers (many of whom never worked a day in their life) are no longer in the market for various reasons ....and of course paper currency could "go Weimar"...and many other such "problems".

    So perhaps the wisest thing to do is to not waste too much (real time and real energy ) in accumulating too much (unreal?) value in the hope of converting it later into something half way useful. Yoga teaches one to focus on every breath. As a Yoga teacher I once had said to the Yoga class...."if you are breathing, you are doing Yoga". Can realizing that literally "take one's breath away"?

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  2. Max, a measurement of density with such a precision for such heavy objects is practically impossible. And it is enough to have a small defect in the fusion (it happens) to make the measurement useless. Much easier to drill a hole in the thing - or, if you don't want to touch it, use neutron scattering and you can do it wholesale.

    But you have a good point - what does it matter if the gold bars in Fort Knox are all in tungsten? Probably nothing changes. But propaganda is a powerful weapon and if the rumor spread that gold is not really gold then the price of gold could crash..... hey, wait a moment.... what did I say......?




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    1. O.K. then maybe we agree ! All we have to do now is hope that the price of gold DOES crash and the world economy with it? Saved by invisible tungsten?

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  3. One of the problems of the "gold standarrd" monetary system is that there is not enough gold. Is there enough tungsten? Then one could print money backed by gold plated ingots, without anybody knowing, and everyone would be happy. Or not?

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    1. An economy based on tungsten? Hmmm..... tungsten is relatively abundant, much more than gold. And it has the advantage of being easily recognizable. Nothing on this planet is at the same time so dense and so hard as a chunk of tungsten metal. But maybe we have too much of it, with the disadvantage (for some) that it is extracted mostly in China.

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    2. Dear Ugo, there are some other ways to detect tungsten embedded into gold? Maybe measuring electrical conductivity? Maybe it is a bad method because currents tend to go through the more conductive path, but I'm not really an expert about it.

      Another question: suppose that someone really DO engulf some tungsten into a gold bar. Suppose that it is disclosed to the public. This is not a minor issue: at this point a breach is open into the trust: the holders of gold bars will rush to test the integrity of their own deposits, the same is true for a great deal of investors. The possibility to breach the trust on gold is as nasty as the fact in itself. The gold value in not given only by its scarcity, it is also based on trust. The gold value will be rapidly reducted, if other fakes vould be discovered. Public reassurances would be useless.

      At this point, there is an explosion/implosion equilibrium : do you want really to check or not? Maybe unleashing a Pandora's box of consequences doing this?

      There is couple of universal law that are always valid:" if something could go wrong, it will", and "There is always someone that will act doing something idiot".

      So all of them is valid for the fake gold. If someone has really tricked some gold bars, there will be someone that will discover this trick sooner or later and made it public without thinking about the consequences.

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    3. I think electric conductivity measurements won't work - all what you measure is the "skin" conductivity and that is pure gold. About the other question - it is not theory: it has been done. I have friends in the Italian gold industry and they told me that!

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    4. The M0 money supply (Physical coins and bills.) is only 1.2 trillion. Obviously it is impossible for the US dollar to serve as the medium of exchange.

      Do you see how stupid that sounds? ANY amount of gold is enough to operate on a gold standard. The gold or silver doesn't disappear the instant you give it to the gas station attendant. It gets recycled over and over again through the system just like fiat money does today. The only question worth asking is what is the equilibrium value of gold/silver were it suddenly used as currency again.

      At today's price there isn't enough gold to back every dollar, but that just means that the exchange ratio is too low.

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  4. There are specific tools you can use by yourself (without a lot of complicately know-how) to protect yourself when you buy clasic gold coins.
    For example this : http://www.thefisch.com/ Is a simple custom tool-balance who can test 4 diferent characteristics of the coin.

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  5. Yes, the fisch works just fine for commonly minted gold coins.

    Regarding bullion, ultrasound WILL detect gold coated tungsten inserts with 100% certainty. It will also detect silver bullion with a base metal core. You don't need high-end imagery technology either. Just simple testing based on sound velocities is sufficient, as can be seen on testyourgold.com

    Investors in gold and silver don't need to do much, or spend a lot of money to protect themselves from fraud, contrary to what may be perceived from the article.

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  6. Well, it is what I say: "There is little to be worried for the ordinary person", provided that some elementary precautions are taken"

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  7. True enough Ugo. It's just a matter of taking the right precautions.

    I don't underestimate the Chinese to make bullion products that fool density and XRF testing, regardless of the thickness of the metal. If there's even a 25% return on it there's a chance they'll probably do it. So it's a matter of choosing the testing methods for metallurgical properties that they can't fool, and are affordable to undertake, and then tailoring your investments around those precautions.

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  8. Note: ultrasonic detection of tungsten is not infallible. The tungdtene may be in powder form and can not be detected by ultrasonic detection. . Only the scanner developed by JC-engineering (www.jc-engineering.net CheckGold), which measures the electrical conductivity is able to certify the quality of ingots and measure the level of pollution (tungsten, copper or silver or other)

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  9. Fake Krugerrand for sale, coins are made with Tungsten alloy, perfect size AND weight. Coins can pass Fisch test and look amazing. No minimum order, shipping worldwide. Buy Tungsten Krugerrand today bullion [at] privatdemail [dot] net

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  10. Can anyone tell me about standard methods of gold examination in laboratories.

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  11. as someone who has fallen victim to buying fool's gold, everything in here is spot on. thank you sharing this information!

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  12. There may be problems with gold counterfeiting with tungsten nowadays.

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  13. very interesting and helpful post. some people know no boundaries

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Who

Ugo Bardi is a member of the Club of Rome and the author of "Extracted: how the quest for mineral resources is plundering the Planet" (Chelsea Green 2014)