Post by ukipa on Nov 25, 2011 20:03:30 GMT 4
Asset Location and Due Diligence – How To Make Fake Gold
The problem with making fake gold is that real gold is uniquely dense.
Metal or Alloy Density kg/m3
Aluminum 2,712
Brass 60/40 8,520
Bronze (8-14% Sn) 8,000
Cast iron 7,400
Gold 19,320
Lead 11,340
Mercury 13,593
Palladium 12,160
Platinum 21,400
Plutonium 19,816
Red Brass 8,746
Silver 10,490
Tungsten 19,600
Uranium 18,900
Gold is almost twice the density of lead, and two-and-a-half times more dense than iron. You may not notice this in jewelry, but if you hold a bar of solid gold you will note that it is very heavy for its size.
The standard unit of gold for bank-to-bank trade is known as the London Good Delivery (LGD) bar, and weighs 400 troy ounces. An LGD weighs over 33 pounds, and is about 9.8 x 2.3 x 1.4″ (250 x 60 x 37mm), having about the same volume as a 16 ounce soup can. On August 1, 2011 an LGD was valued at approximately $650,000.
So the problem is how to make a fake gold bar that passes a test for density. There are few metals that are as dense as gold and, with only a few exceptions, they cost as much or more than gold. It’s poor business to manufacture a counterfeit that costs more than an original, so we’ll have to eliminate platinum and depleted uranium. Actually, depleted uranium is simply hard to get, illegal to own, and slightly radioactive. These could be a bit of an issue when you trip a sensor and have to explain to authorities why you’re storing depleted uranium in the first place.
So we’re left with tungsten, and tungsten turns out to be a good option as it has nearly the same density as gold. And at $14 a pound — compared to $20,000 a pound for gold — we’re getting over 1400:1 for an even exchange. The main problem with tungsten is that it’s the wrong color and it’s very hard, as opposed to the soft and malleable properties of pure gold.
To create a top-of-the-line fake gold bar, one that’s capable of being passed off as a real gold bar (the only kind we think worth making), you need to match the color, surface hardness, density, chemical, and nuclear properties of gold perfectly.
To do this, you could start off with a tungsten slug about 3 mm smaller in each dimension than the finished gold bar, and then cast a 1.5 mm layer of pure gold all around it. This bar would feel right, it would have a dead ring when knocked (as gold does), it would test right chemically, it would weigh correctly, and it would also pass an x-ray fluorescence scan, the 1.5 mm layer of pure gold being more than enough to stop the x-rays from reaching any tungsten. You’d pretty much have to drill it to find out that it’s fake.
Now, of course you’re thinking, “Surely, central bank gold inspectors are wise to this trick and have developed a test for tungsten slugged gold bars – right?” Right. By using ultrasound — the same technology used for prenatal care and to detect metal fatigue – a skilled inspector can test gold bars for voids and inserts. It’s an easy quick, and non-destructive test that can be done on any desk (GE Phasor XS, portable Phase Array Ultrasonic with flaw detector technology).
A top-quality fake LGD bar, such as this, would cost about $30,000 to produce because it still has a lot of real gold in it — but it’s still a nice profit, considering that a real one is worth closer to $650,000. A lower budget version could be made by using the same under-sized tungsten slug and casting a lead-antimony alloy around it (to match the hardness, sound, and feel of gold), then adding a heavy coat of gold plate. A bar constructed this way would still feel right, sound right, and be only very slightly underweight — while costing less than $2,000 in materials to produce. A plated bar would not pass x-ray testing, and whether it passed any chemical test would depend on the thickness of the electroplating.
If this a real risk? I guess it depends upon whether you are buying or selling.
2008
• In 2008 Ethiopia’s Central bank had, in inventory, gold plated steel that had been valued at several million dollars. Some was purchased from a local dealer, and some had been seized from smugglers trying to take it to Djibouti.
2009
• A report from Hong Kong said 400 oz LGD bars purchased from GLD ETF Fund were found to have tungsten inside. The blame was first aimed at the Chinese, who stated their inventory originated from the U.S. during the Clinton administration.
If you read the disclaimers on gold ETFs you will find language similar to the following –
“Gold bars allocated to the Trust in connection with the creation of a Basket may not meet the London Good Delivery Standards and, if a Basket is issued against such gold, the Trust may suffer a loss. Neither the Trustee nor the Custodian independently confirms the fineness of the gold bars allocated to the Trust in connection with the creation of a Basket. The gold bars allocated to the Trust by the Custodian may be different from the reported fineness or weight required by the LBMA’s standards for gold bars delivered in settlement of a gold trade, or the London Good Delivery Standards.
• In Late 2009 several fake gold bars were discovered at he Inchon Airport when a passenger flying in from the Congo tried to bring them into Korea.
2010
• Several tons of gold imports from Ghana to UAE turned out to be false on closer inspection.
• German TV station ProSieben found compelling evidence of gold counterfeiting, in the form of tungsten gold substitutes delivered to the W.C.Heraeus foundry, the world’s largest privately-owned precious metals refiner and fabricator, located in Hanau, Germany. The foundry has isolated at least one 500-gram tungsten bar due for melting, originating from a (so far) unnamed bank which made the unpleasant discovery.
There are conspiracy theories asserting that most of the gold bars in the UK and US are filled with Tungsten. While I am willing and able to accept an assignment, if offered, to support or debunk these theories — I am more concerned about bringing this to the attention of our readers, clients, and friends — for now.
If you are trading in Gold ETFs or you are dealing with the Gold Bugs of the world — there is a real risk, not a hypothetical problem, with counterfeit or altered gold bars of all sizes. X-Ray florescence may test the surface, but you need the GE Phasor XS, a portable Phase Array Ultrasonic with flaw detector technology, or something like it, to cover your assets. As in any due diligence effort, you have to dig below the surface. If an audit found this practice to be more widespread than is believed, the value of verified physical gold goes up – while Gold ETFs and currencies go down.
NOTES:
This problem has not yet been observed in coins, as the cost and effort required is substantial. This may change. I am not endorsing GE in any way.
The problem with making fake gold is that real gold is uniquely dense.
Metal or Alloy Density kg/m3
Aluminum 2,712
Brass 60/40 8,520
Bronze (8-14% Sn) 8,000
Cast iron 7,400
Gold 19,320
Lead 11,340
Mercury 13,593
Palladium 12,160
Platinum 21,400
Plutonium 19,816
Red Brass 8,746
Silver 10,490
Tungsten 19,600
Uranium 18,900
Gold is almost twice the density of lead, and two-and-a-half times more dense than iron. You may not notice this in jewelry, but if you hold a bar of solid gold you will note that it is very heavy for its size.
The standard unit of gold for bank-to-bank trade is known as the London Good Delivery (LGD) bar, and weighs 400 troy ounces. An LGD weighs over 33 pounds, and is about 9.8 x 2.3 x 1.4″ (250 x 60 x 37mm), having about the same volume as a 16 ounce soup can. On August 1, 2011 an LGD was valued at approximately $650,000.
So the problem is how to make a fake gold bar that passes a test for density. There are few metals that are as dense as gold and, with only a few exceptions, they cost as much or more than gold. It’s poor business to manufacture a counterfeit that costs more than an original, so we’ll have to eliminate platinum and depleted uranium. Actually, depleted uranium is simply hard to get, illegal to own, and slightly radioactive. These could be a bit of an issue when you trip a sensor and have to explain to authorities why you’re storing depleted uranium in the first place.
So we’re left with tungsten, and tungsten turns out to be a good option as it has nearly the same density as gold. And at $14 a pound — compared to $20,000 a pound for gold — we’re getting over 1400:1 for an even exchange. The main problem with tungsten is that it’s the wrong color and it’s very hard, as opposed to the soft and malleable properties of pure gold.
To create a top-of-the-line fake gold bar, one that’s capable of being passed off as a real gold bar (the only kind we think worth making), you need to match the color, surface hardness, density, chemical, and nuclear properties of gold perfectly.
To do this, you could start off with a tungsten slug about 3 mm smaller in each dimension than the finished gold bar, and then cast a 1.5 mm layer of pure gold all around it. This bar would feel right, it would have a dead ring when knocked (as gold does), it would test right chemically, it would weigh correctly, and it would also pass an x-ray fluorescence scan, the 1.5 mm layer of pure gold being more than enough to stop the x-rays from reaching any tungsten. You’d pretty much have to drill it to find out that it’s fake.
Now, of course you’re thinking, “Surely, central bank gold inspectors are wise to this trick and have developed a test for tungsten slugged gold bars – right?” Right. By using ultrasound — the same technology used for prenatal care and to detect metal fatigue – a skilled inspector can test gold bars for voids and inserts. It’s an easy quick, and non-destructive test that can be done on any desk (GE Phasor XS, portable Phase Array Ultrasonic with flaw detector technology).
A top-quality fake LGD bar, such as this, would cost about $30,000 to produce because it still has a lot of real gold in it — but it’s still a nice profit, considering that a real one is worth closer to $650,000. A lower budget version could be made by using the same under-sized tungsten slug and casting a lead-antimony alloy around it (to match the hardness, sound, and feel of gold), then adding a heavy coat of gold plate. A bar constructed this way would still feel right, sound right, and be only very slightly underweight — while costing less than $2,000 in materials to produce. A plated bar would not pass x-ray testing, and whether it passed any chemical test would depend on the thickness of the electroplating.
If this a real risk? I guess it depends upon whether you are buying or selling.
2008
• In 2008 Ethiopia’s Central bank had, in inventory, gold plated steel that had been valued at several million dollars. Some was purchased from a local dealer, and some had been seized from smugglers trying to take it to Djibouti.
2009
• A report from Hong Kong said 400 oz LGD bars purchased from GLD ETF Fund were found to have tungsten inside. The blame was first aimed at the Chinese, who stated their inventory originated from the U.S. during the Clinton administration.
If you read the disclaimers on gold ETFs you will find language similar to the following –
“Gold bars allocated to the Trust in connection with the creation of a Basket may not meet the London Good Delivery Standards and, if a Basket is issued against such gold, the Trust may suffer a loss. Neither the Trustee nor the Custodian independently confirms the fineness of the gold bars allocated to the Trust in connection with the creation of a Basket. The gold bars allocated to the Trust by the Custodian may be different from the reported fineness or weight required by the LBMA’s standards for gold bars delivered in settlement of a gold trade, or the London Good Delivery Standards.
• In Late 2009 several fake gold bars were discovered at he Inchon Airport when a passenger flying in from the Congo tried to bring them into Korea.
2010
• Several tons of gold imports from Ghana to UAE turned out to be false on closer inspection.
• German TV station ProSieben found compelling evidence of gold counterfeiting, in the form of tungsten gold substitutes delivered to the W.C.Heraeus foundry, the world’s largest privately-owned precious metals refiner and fabricator, located in Hanau, Germany. The foundry has isolated at least one 500-gram tungsten bar due for melting, originating from a (so far) unnamed bank which made the unpleasant discovery.
There are conspiracy theories asserting that most of the gold bars in the UK and US are filled with Tungsten. While I am willing and able to accept an assignment, if offered, to support or debunk these theories — I am more concerned about bringing this to the attention of our readers, clients, and friends — for now.
If you are trading in Gold ETFs or you are dealing with the Gold Bugs of the world — there is a real risk, not a hypothetical problem, with counterfeit or altered gold bars of all sizes. X-Ray florescence may test the surface, but you need the GE Phasor XS, a portable Phase Array Ultrasonic with flaw detector technology, or something like it, to cover your assets. As in any due diligence effort, you have to dig below the surface. If an audit found this practice to be more widespread than is believed, the value of verified physical gold goes up – while Gold ETFs and currencies go down.
NOTES:
This problem has not yet been observed in coins, as the cost and effort required is substantial. This may change. I am not endorsing GE in any way.