Why in the world were they using gold-plated tungsten and copper when they could have just spray-painted old two-by-fours?
(by Half Dollar) Ya don’t say?
A gold scandal is making the rounds in the mainstream media today?
From everybody’s favorite (wannabe) alternative website, Zero Hedge:
Over the years, we have periodically reported of the occasional gold bar discovered as counterfeit in Manhattan’s Diamond District which instead of containing the yellow precious metal would be filled with gold-plated tungsten or in some cases copper. The news would spark a brief wave of outrage, prompting physical gold holders to run ultrasound spot checks of their inventory, at which point interest would wane and why not: buyer, after all, beware in gold as in every other market, and if someone is spending thousands to buy fake gold, well that’s Darwinism in action.
Yet one market which seemed stubbornly immune to any counterfeiting was that of physical gold in China, which was odd considering that over the past decade China had emerged as the world’s biggest counterfeiter of various, mostly industrial metals used to secure bank loans, better known as “ghost collateral“, and which adding insult to injury, would frequently be rehypothecated meaning often several banks would have claims to the same (fake) asset.
All that is about to change with the discovery of what may be one of the biggest gold counterfeiting scandal in recent history. And yes, not only does it involve China, but it emerges from a city that has become synonymous for all that is scandalous about China: Wuhan itself.
With that preamble in mind, we introduce readers to Wuhan Kingold Jewelry Inc., a company which as the name implies was founded and operates out of Wuhan, and which describes itself on its website as “A Company with a Golden future.”
In retrospect, it probably meant “copper” future, because as a remarkable expose by Caixin has found, more than a dozen Chinese financial institutions, mainly trust companies (i.e., shadow banks) loaned 20 billion yuan ($2.8 billion) over the past five years to Wuhan Kingold Jewelry with pure gold as collateral and insurance policies to cover any losses. There was just one problem: the “gold” turned out to be gold-plated copper.
Some more background: Kingold – whose name was probably stolen from Kinross Gold, one of the world’s largest gold miners – is the largest privately owned gold processor in central China’s Hubei province. Its shares are listed on the Nasdaq stock exchange in New York (although its current market cap of just $10MM is a far cry from its all time highs hit when the company IPOed on the Nasdaq around 2010) . The company is led by Chairman Jia Zhihong, an intimidating ex-military man who is the controlling shareholder.
What could go wrong?
Well, apparently everything as at least some of 83 tons of gold bars used as loan collateral turned out to be nothing but gilded copper. That has left lenders holding the bag for the remaining 16 billion yuan of loans outstanding against the bogus bars. And as Caixin adds, the loans were covered by 30 billion yuan of property insurance policies issued by state insurer PICC Property and Casualty and various other smaller insurers.
The fake gold came to light in February when Dongguan Trust (one of those infamous Chinese shadow banks) set out to liquidate Kingold collateral to cover defaulted debts. As the report continues, in late 2019 Kingold failed to repay investors in several trust products. To its shock, Dongguan Trust said it discovered that the gleaming gold bars were actually gilded copper alloy.
The news sent shockwaves through Kingold’s creditors. China Minsheng Trust – another shadow banking company and one of Kingold’s largest creditors – obtained a court order to test collateral before Kingold’s debts came due. On May 22, the test result returned saying the bars sealed in Minsheng Trust’s coffers are also copper alloy.
And with authorities investigating how this happened, Kingold chief Jia flatly denies that anything is wrong with the collateral his company put up. Well, what else could he say…
As Caxin notes, the Kingold counterfeiting case echoes China’s largest gold-loan fraud case, unfolding since 2016 in the northwest Shaanxi province and neighboring Hunan, where regulators found adulterated gold bars in 19 lenders’ coffers backing 19 billion yuan of loans, or about USD $2.5 billion. In that case, a lender seeking to melt gold collateral found black tungsten plate in the middle of the bars.
In the case of Kingold, the company said it took out loans against gold to supplement its cash holdings, support business operations and expand gold reserves, according to public records. It then appears to have decided to apply a gold-layer to tons of copper and pretend it was money-good gold collateral. And even more shocking, for years nobody checked the authenticity of the pledged collateral!
In 2018, the company beat a number of competitors in bidding to buy a controlling stake in state-owned auto parts maker Tri-Ring Group. Kingold offered 7 billion yuan in cash for 99.97% of Tri-Ring. The Hubei government cited the deal as a model of so-called mixed-ownership reform, which seeks to invite private shareholders into state-owned enterprises. But Kingold has faced problems taking over Tri-Ring’s assets amid a series of corruption probes and disputes involving Tri-Ring.
After obtaining the test results, Minsheng Trust executive said the company asked Jia whether the company fabricated the gold bars: “He flatly denied it and said it was because some of the gold the company acquired in early days had low purity,” the executive said. In a telephone interview with Caixin in early June, Jia denied that the gold pledged by his company was faked.
“How could it be fake if insurance companies agreed to cover it?” he said and refused to comment further. Well, the answer is simple: the insurance companies were in on the scam, but that’s a story for another day.
In early June, Minsheng Trust, Dongguan Trust and a smaller creditor Chang’An Trust filed lawsuits against Kingold and demanded that PICC P&C cover their losses. PICC P&C declined to comment to Caixin on the matter but said the case is in judicial procedure. A source from PICC P&C told Caixin that the claim procedure should be initiated by Kingold as the insured party rather than financial institutions as beneficiaries. Kingold hasn’t made a claim, the Caixin source said.
In total, Kingold pledge tens of thousands of kilograms of gold to no less than 14 creditors amounting to just under 20 billion yuan.
Click here for the rest of the story on Zero Hedge.
Here’s the takeaway: If you don’t hold it, you don’t own it, and if you own it, you’d better be certain it’s real gold (or silver)!
OK, “Hey Half Dollar, yeah-yeah, we get it. If you don’t hold it, you don’t own it. But how do you know the gold or silver you are buying is real Mr. Smarty Pants?”.
There are many ways to know if your gold or silver is real or not, as far as gold or silver in-hand, that is.
First and foremost, if you’re buying a 1 ounce Gold American Eagle on Ebay for $300 with free shipping from China, that crap’s fake.
Likewise, if you’re strollin’ around your local flea market one lazy Sunday Summer afternoon, and if a guy you’ve never seen there before has a ton of “gold” and “silver” coins that anybody could just grab a handful of and like, run off with, well, that crap’s fake too.
There are simple ways to tell, and our good friends over at SD Bullion have a lot of free content and videos about this topic.
I’d provide a link, but Google and the Internet Censors actively target us, you know.
But I digress.
There are simple, cost effective things anybody can do to make sure they are buying a legit 1 ounce coin – say an American Silver Eagle.
First and foremost, buy from somebody you can trust, or at the very least, buy from somebody that you know you can trust at the moment of the transaction if actually seeing and being able to handle the coin before purchase.
Secondly, it’s not too difficult for the counterfeiters to get two of the three, but not all three.
Specifically, the counterfeiters can get weight, diameter and thickness, but not all three at once.
In my experience, most fake coins are the same size and thickness but much lighter in weight.
Obviously this requires some items, such as access to a given coin’s dimensions, in either a coin reference book (which I like to have for cross-referencing), or at least access to the internet to look up the dimensions, plus calipers, an accurate, small digital scale, and etcetera, with my point being there are things that can be done, for cheap, on the spot.
There are also super duper testing kits and testing equipment which come with all the bells and whistles, for detection is really a matter of how much you want to spend.
That said, detecting fake coins is an article for another day, but for now, if I could be so rude as to make a shameless plug, in a kind-of related way, here are some things to consider when buying coins:
Thank you for your consideration!