It is proving quite difficult to find any mainstream information sources able to substantiate the rumors that have been circulating about the widespread distribution of fake tungsten filled gold bars. So the story goes, about 15 years ago between 1.3 and 1.5 million 400oz tungsten bars were allegedly manufactured by a sophisticated refiner in the US. To save you whisking out your calculator that’s more than 16,000 metric tons. Subsequently, some 640,000 of these tungsten blanks were 24kt gold plated and shipped to Fort Knox. Since then these or other bars manufactured by the same company have found their way into sovereign vaults and ETF’s holdings around the world.
First, why would anyone do it? Well gold comes in various forms and sizes. Coins are stamped, smaller bars are stamped or machined, but the largest size, 400 oz “good delivery bars favored by central banks and major investors are cast – making them easier to hollow out and fill with tungsten. Because it is so hard, tungsten is notoriously difficult to stamp to shape.  At $20/lb, tungsten obviously is a whole lot cheaper than gold at $16,000 per pound and with a density of 19.35g/cm3 it is almost a pure match for gold at 19.32g/cm3 making detection by standard methods impossible. Assayers around the world are reportedly being asked to check reserves but they will have to use more sophisticated methods than simple weight, such as drilling holes into the center of bars or scanning them to see into the core. One wonders what methods the Indians used to check their 200 ton purchase form the IMF last month.
Now these stories would have remained just that, stories, if London Bullion Market Association (LBMA) approved vaults in Hong Kong did not discover 400oz bars of exactly this type last month. The discovery has got people asking what chance is there that the physically backed gold ETF’s are not sitting on some of the same bars? As they are not required to audit their holdings, no one is going to know. Moreover their prospectus purportedly reads, “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. In other words it’s the buyers’ problem, not the fund. A story in Commodity Online that the Central Bank in Ethiopia had discovered some of the same bars in their reserves a few years ago proved to be a red herring. The bars were indeed fakes but they were gilded steel and showed up the moment the bars were shipped to South Africa the South Africans know a thing or two about gold, they were promptly returned. Interestingly some producers are not so covert about their activities. A Chinese company called Chinatungsten is advertising imitation gold merchandise on its website. The following quote is taken directly from their Tungsten Alloy for Gold Substitution page: “a coin with a tungsten center and gold all around it could not be detected as counterfeit by density measurement alone … We are well accustomed to exploit more innovative applications of tungsten products. Gold-plated tungsten is one of our main products.” One wonders what kind of customer they are selling to!
So not only does there appear to be an element of truth in the long running rumors of these tungsten containing 400oz bars but there also appears to be a current thriving business in such fraudulent activities. The great unknown is how much fake material is really out there and who is going to pick up the tab if its proves to be as widespread as some in the anarchy department would have us believe.
–Stuart Burns
