Gold News

Florida Gold Scam Hits Chinese Finance

Bullionvault explains how China's trade financing boom looks to be scammed by double counting...
 
GREAT example in China's metal headlines last week of the problem with certificates, writes Adrian Ash at BullionVault.
 
An investigation at Qingdao, the fifth busiest port in the world's No.1 exporter and No.2 importer, has found the same cargo of metal – iron ore by all accounts – used multiple times as collateral for bank loans.
 
This means many different banks and trading houses now think they own the same chunks of iron. So they've all raced into the warehouse to count the bars.
 
"When we were there," Reuters quotes yet another anonymous source, "we did hear a couple of traders holding the same title. One was saying that one cargo belongs to me, the other said it belongs to him.
 
"They had the same document."
 
Let's put China's looming metals trade financing bust to one side. Today's news is as old as the storage business itself (older than money and pretty much starting when civilization began). Because where you rely on a piece of paper...a receipt or certificate...to say that you own something, you have no way of knowing your title is unique.
 
Whether it's silver ingots in Ancient Babylon...copper warehousing in China...or gold bars in Swiss vaults...the problem with certification is that it abstracts your ownership from the metal, which becomes a physical asset underlying a financial instrument. You own that instrument, not the metal.
 
The unavoidable risk? Two identical pieces of paper (or papyrus) lay claim to the same underlying property.
 
Now, there is not yet any reliable means of tracking certificates. So they may be issued to banks and trading houses all around the world...or to retirees all across Florida trying to beat inflation with gold bars. Nor is there any way of cross-checking the total of certificates out there to an underlying stock of metal.
 
For that, you need a central register...one which is open to full scrutiny, and which matches the sum total of property in storage with the sum total of customer holdings.
 
This is how Bullionvault works. You can check our unique Daily Audit from anywhere in the world. It takes the vault operators' Bar Lists, and reconciles them down to the last gram with BullionVault's client records.
 
Boring yes, but important. The Bar Lists are beyond our control. Because the vaults we use to care for your property are owned and run by independent, third-party specialists. They are highly motivated, to protect their brand and reputation, to check we don't fiddle those records before publication on the net. But to double-check there's no mis-counting, we also send independent assayers into the vaults once a year, to conduct a full tally count and inspection of all the bars. You can see their full report as part of a further independent study, undertaken by financial auditors and published on their site here.
 
The client records are also beyond fiddling. Because if we tried to sell more metal than exists in a vault, then the sum of client holdings would exceed the Bar List's total. So we'd need to reduce one or more client's holdings to get the Audit to match. But each and every client can see their holdings, stated in public, each day. And if one user's Daily Audit holdings didn't match their logged-in session records, they'd soon let us...and no doubt the Met Police...know about it.
 
Remember, double-counting...or what you might call under-vaulting...is not an academic problem in metals storage.
 
Just type "Florida gold scam" into Google to see the latest examples of this age-old problem.
 
Then go to our Daily Audit...plus the independent assayer's reports, and the financial auditor's full study of the process...to see how BullionVault ensures you own physical metal in full, safe and sound right where you want it.

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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