Why Gold Coin buyers need to build professional expertise today...
PERHAPS YOU RECALL movies about the Old West, wherein a shady-looking character would offer to exchange a Gold Coin for a horse, and the seller would bite down on the coin to verify its authenticity, writes Doug Hornig, editor of Big Gold for Casey Research.
That was about all you could do with a Gold Coin if you lacked proper assaying equipment and had to make a snap judgment. 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, because gold – despite being among the heaviest metals – is also very soft. If you chomp down and shatter a tooth, it ain't gold in short
But before you go munching on your own Gold Coin collection, you might want to ask yourself, why bother? Well, because of the internet.
You see, while the net has become an indispensable resource and we'd never want to return to the days when basic research meant a long day in the library, it also has the ability to stir up a hornet's nest of concern at the drop of a stick.
One such hornet release followed the recent publication of a three-part series by Coin World, dealing with the subject of coin counterfeiting in China – where making fake coins just happens to be quasi-legal.
Instantly, the web was buzzing with the worries of bloggers and eBay shoppers, and the pontifications of pundits about this dire threat. But before we got too worked up about it, first thing we did was carefully read the source material.
Yes, the Coin World articles raise the issue, and they feature an in-depth interview with one Chinese counterfeiter, although that's not what he calls himself. He's a proud artisan who produces replicas. Of what? As it turns out, it's primarily copies of ancient Chinese coins, which are sold to tourists. A few fake US silver dollars are put up each week on eBay, but they are required to carry a Replica stamp.
Do all Chinese counterfeiters abide by this regulation? Perhaps not. But eBay has always been a place where caveat emptor rules, so the best policy would probably be simply to avoid coin purchases from China.
Looking further at this problem, however, and consulting with leading US dealers, we asked if they come across many fake bullion Gold Coins – such as Eagles or Maple Leafs. The answer was no. They've only seen a handful during their thirty years in business.
Not that it's hard to do. With modern 3-D laser imaging, a die can be created that mimics the real thing in perfect detail. The good news is that it's impractical. The difficulty is that any counterfeit bullion coin would likely have to be gold in order to pass.
If it were pure, then the profit margin would be too small to make the deal worthwhile. 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.
Which brings us to the areas where counterfeiting can be a real problem. The most significant is rare coins.
Rare Gold Coins can be mimicked with the proper gold (or silver) content, then artificially aged so that only an experienced numismatist could pick them out. Because of the premium they command, rare coins made with real gold would be highly profitable, whereas a simple bullion coin (such as Krugerrands, Maples or Eagles) would not.
This is one of the reasons 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. If you collect rare coins and have any reason to suspect them, it's pretty easy to sort the real slabs from the fakes. Coin World provides illustrations on just how to do that. Subscribers can access the report here.
Gold Bars, when traded outside the wholesale professional market, are a different matter. Fakes do show up in the private retail 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 hoodwinking private buyers with 1-kilogram bars or larger sizes.
These are poured, rather than stamped, and can be easily adulterated or even hollowed out and filled with lead or some other metal. Compounding the problem is a lack of standard weights, even among Good Delivery bars. The "400-ounce" bar, for example, can vary anywhere from 350 ounces to 450 ounces, because when a refinery pours metal from a delivery of ore, it doesn't want to create exact 400-ounce bars only to end up with a handful of spare ounces at the end.
As mentioned above, we here at Casey Research don't believe that there is a serious issue with counterfeit Gold Bullion coins at the moment. But that doesn't mean that they don't exist, nor does it mean that evolving technology might not make them more profitable in the future than they are now.
The best precaution if you are going to invest in Gold Coins – along with all the extra costs and hassles that involves – is the simplest: Deal with someone you trust. Establish the dealer's credentials and reputation and check for complaints or orders against them.
For small bars, purchase only those that carry the stamp of one of the best-known, trustworthy refiners, such as PAMP, Credit Suisse, or Johnson Matthey. Or ask your dealer if they do assays. Reputable outfits generally assay bars that are a kilogram or larger. If you want a 100-ounce bar, consider buying direct from the Comex, which will also vault it for you. That removes the assay requirement when you buy, but remember that if you take physical delivery of a large bar, you'll need an assay when you sell. Do not, under any circumstances, buy a larger gold bar on the internet or from a private seller you don't personally know.
[Ed.Note: Best of all, side-step the dangers of private hand-to-hand dealing altogether, and get experts – at remarkably low-cost – to check and warrant the quality of professional Gold Bars for you, accessing the wholesale Good Delivery market direct at BullionVault...]
If you're still worried about a Gold Coin, there are tests you can perform to check it out.
For gold, you can bite it, although you may not want to mar the surface of the real thing. Silver coins you can drop on the floor and they will ring; alloys won't. The ring test is less useful with gold, since 24-karat gold doesn't ring; less than 22 karats does, but so does brass.
Size and weight are good measures. Make a list of the diameters of genuine coins for comparison purposes. Get a scale calibrated to hundredths of a gram. If a bullion coin weighs light (or, possibly, heavy), it's bogus. This link offers a handy list of coins with all weights, diameters and thicknesses.
A good counterfeiter may be able to get all other aspects of an adulterated coin right, but he won't be able to fake density. Gold has a higher specific gravity than other metals, and 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 test for weight, thickness, and diameter.
If you happen to have some nitric acid and are a very careful person, you can drop your coin into a beakerful. Base metals will react, gold won't.
Rare coins are more of a challenge. If that's where your interest lies, look for specimens that have been graded and slabbed. Otherwise, there's no substitute for experience. Examine coins with a magnifying glass, heft them in your hand. Get to know what the real deal looks and feels like. Read up on the kinds of imperfections that characterize the phonies. Become your own expert.
Precious metals are going to be attractive to con artists, just like anything else of real value. But there are some decent safeguards already built into the system. Supplement them with your own knowledge and common sense, and it shouldn't be difficult to avoid becoming a victim.