When someone buys a gold bar, they must trust that the bullion dealer, or whomever is selling the bar, is reputable and knows what they are doing. In other words, they—the customers—believe that what they are buying is real.
While it's true that everyone makes mistakes, such an error can cost a bullion dealer their reputation and, ultimately, their business.
Unfortunately, there has been more than one well-publicized incident this year involving bullion that has been verified counterfeit after being sold in North America.
According to the Canadian Broadcast Corporation (CBC), a jeweler in Ottawa purchased a gold bar from his local branch of the Royal Bank of Canada in October only to find that the bar was counterfeit. The purchase price of C$1,680 (roughly $1,320 in terms of USD) was eventually refunded.
The piece was supposed to be a .9999 fine gold bar bearing the Royal Canadian Mint (RCM) brand stamp. The bar (really just a one-ounce wafer) was apparently sealed in its original plastic packaging from the mint, but when the jeweler opened the package and began to work with the metal, he quickly realized something was wrong.
Gold is known for being the most malleable of all metals, but the goldsmith found it exceptionally difficult to roll out the gold bar. It even snapped in half like a brittle cracker, something that pure gold would never do.
While tests showed that the fake RCM bar wasn't even composed of gold of a lower purity, there was nothing obviously suspicious about the bar or its packaging detected by the buyer. The same is true for whatever wholesale transaction preceded the sale. Understandably, the incident makes one wonder how many more of these convincing fakes are out there.
In fact, over the past year, there have been other similar cases of counterfeit gold bars being sold in Canada. The trend has likewise been seen in the United States, but more often with fake American Gold Eagles, which are government-issued gold bullion coins. These counterfeits are usually made of tungsten, which has a similar density as gold, hidden beneath a thin layer of gold plating.
The problem of counterfeit coins is finally receiving some attention. As recently as late October, representatives in Congress were chiding members of the U.S. Secret Service for their apparent apathy about investigating cases of fake Gold Eagle coins. The legislature is considering what new measures might be taken to combat what appears to be a growing problem.
There has even been a concerted campaign by the American numismatic news media to conduct a thorough auditing of the U.S. Mint's anti-counterfeiting practices. Trust is an important component of the over-the-counter bullion market, so if the mint fails to address the issue in an adequate manner, it will have a ripple effect across the market.
The U.S. Mint may implement similar security features to its bullion coin series that have been at the Royal Canadian Mint, Royal Mint (U.K.), and Perth Mint (Australia). A call to action by various pundits is shining a brighter light on the problem, but it won't be solved until concrete steps are taken. The mint should introduce new security measures on the coins themselves, a concept that private refineries and the Royal Canadian Mint have already been putting into practice for years. Yet there also needs to be an effort to inform consumers about what signs to look for to identify possible counterfeits.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.