Monday, March 26, 2012

Avoiding Fraud When Purchasing Precious Metals

There was an article on, by Robert Wenzel of the Economic Policy Journal, discussing a gold bar that had been filled with tungsten.  Tungsten can be used to make fraudulent gold bars.  Gold is a very dense metal and tungsten is the only substance that comes close to gold in density.  Since tungsten is much cheaper than gold, a gold bar filled partially with tungsten would be worth a lot less than what is supposedly being sold.

One of the points of this article was to point out the potential fraud in Fort Knox.  Perhaps the U.S. government owns a lot less gold than what is thought.  If this was discovered, it wouldn't mean all that much to you as an individual.  It would be interesting to know.  It would make people realize that their government is dishonest (as if you need anything else to realize that).  It would mean that the government is a few days closer to bankruptcy than we thought.

As an individual investor, I think it is good to own a small amount of actual gold and silver.  You should not get carried away with buying the actual metal due to the risk of theft or fire or some other accidental loss.  Even keeping it in a bank safe deposit box is not a guarantee.  Even there it could be subject to an accidental loss or a government seizure.  At some point, you should put a little bit of faith in the whole system and buy gold and gold related investments in other forms, even if it is through a warehouse.

But to start out, it is a good idea to own some actual physical gold and silver.  In regards to the referenced article, I would not worry too much about being defrauded.  First, I would stay away from any large quantities of gold (or silver) in one piece.  The largest piece of gold you should buy is one ounce.  The article referenced a 1 kilo bar, which is over 32 troy ounces.  It is much harder to fill a one ounce gold piece with tungsten.

Second, I would stay away from bars.  It is better to stick with common coins such as the American Gold Eagle.  This coin is easily recognized and hard to counterfeit.  The eagle comes in four sizes: one ounce, half ounce, quarter ounce, and one-tenth ounce.

Third and finally, I would buy from a reputable company or dealer, especially if you are unsure.  You can shop around and find the best prices from companies that are established.  You can also try to find a local gold dealer who you trust and who has decent prices.

So remember, stay small and stay in coins.  Then you don't have to worry about being defrauded.  If there are gold bars in Fort Knox filled with tungsten, then that is someone else's problem.  The U.S. government is almost insolvent anyway, unless it resorts to mass inflation.


Anonymous said...

While American Gold Eagles are good, Krugerands and Maple Leafs carry lower premiums over melt. Personally, I prefer U.S. Pre-1933 double eagles that have been slabbed by either NGC or PCGS and graded between MS 62 and MS 64. The common dates of these coins can be purchased at about 10% over melt today. Why would you pay 5-7% over melt for a simple bullion coin, when you can have a classic US gold double eagle for 5% more? Doing this will provide you with a little numismatic protection should gold drop down to 1k an oz. If gold drops to 1k an oz your AGE will be worth 1k. Your 1924 MS 64 St. Gaudens double eagle will be worth much more. Perhaps $1500. Plus, the St. Gauden's and the type III liberty head double eagles are beautiful coins. Keep in mind that double eagles contain just under 1oz of gold. .967 oz, I believe.

Eric Dondero said...

Some commenters on some sites are suggesting that it was Muslim groups in the UK, bent on tricking "stupid" infidels. This fits Islam's anti-capitalist pattern, and goals of destroying the West.

It will certainly put the Ron Paulists and Lew Rockwellheads in a bit of a pickle, if this is proved to be true, being that the paleos and left-libertarians are pro-Islamist, but also pro-Gold.

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