Precious metals Beware fake gold

Gold has lost hardly any of its value over the last 2000 years. But a word of caution: the Internet is rife with fakes.

by Robert Jakob 09 Mar 2017
Central banks around the world are hoarding more and more gold.

All the gold in the world would fit into my garden. The garden isn’t even that big – just a standard one belonging to a single-family home – but it certainly has space for a 20-metre-long cube, which no one would be able to steal. This cube is what would be produced if all the gold jewelry and investment gold in the world were melted down. That shows just how rare this precious metal is.

Mine operators have to dig up tons of rock to find just a few grams of gold. Since the metal is so rare and cannot be reproduced at will like paper money, it is likely to protect against inflation over the long term. In fact, it has retained approximately the same value since ancient times, defying all wars and currency reforms.

Gold around your neck

What is more, no other metal has the same beguiling radiance as gold, which is why it is so popular for use in jewelry. In India alone, where worried fathers give their daughters golden bracelets and necklaces as protection against the greedy hands of the state and as a dowry, an estimated 22,000 tons of the precious metal have been stashed away in private homes. The global jewelry industry generates around half of the global demand for gold, with only a quarter being accounted for by coins and bars for investment purposes. An eighth of the world’s gold is stashed away by central banks. They do this not only to signal to other countries that their currency is secure but also for investment purposes. In uncertain times, they rely on the certainty of gold.

Private investors may also consider investing a small amount of their wealth in gold. Then, if the worst came to the worst, a small gold bar or coin could easily be converted into money. Electronic or paper money, on the other hand, can be taken away with a single click or a surprise political move, as India has recently demonstrated. Private gold ownership is a thorn in the state’s side there, which is why the Indian government is always imposing new taxes on the precious yellow metal. Despite this, gold still accounts for almost four-fifths of Indian savings.

Taxes on palladium and platinum

Unlike India, Switzerland does not levy any kind of tax on the purchase of gold. Silver, palladium and platinum have it worse from a tax perspective, as these precious metals are subject to 8 percent value-added tax. Although less than in other countries, this is still a significant chunk of money that it will take time to recoup through price increases.

In Switzerland, private individuals can purchase coins and bars for investment purposes anonymously up to an amount of 25,000 francs. Any more than that, and money laundering laws state that the client has to be identified. Of course, every citizen is free to buy more than 25,000 francs worth of gold, but they must make the purchase via their account.

Internet fakes

Be very careful when buying gold on the Internet. Although most gold coins and bars on offer online are genuine, forgeries are a common occurrence, too. Then buyers invariably get into problems with the burden of proof. Since tungsten has the same specific weight as gold but a totally different metallic shine, forgers like to cover a core of tungsten with a thin layer of gold.

Many of these forgeries are primitive, but in recent months some fairly impressive imitations, mostly from China, have begun to trickle into the market. Specialists can check this, for instance by means of ultrasound measurements. A tungsten core is betrayed by the reflection of the sound waves on the border between the two metals. Magnetic measurements can also bring the truth to light. Whereas gold is diamagnetic – it repels magnetic fields that are applied to it – tungsten is paramagnetic and can be magnetized in the same way as iron or nickel. Anyone who buys gold coins or bars from a bank can be certain that a special department has subjected them to very rigorous testing prior to their sale.

About the author

Dr. Robert Jakob was a biochemist who conducted research in the fields of enzymology, immunology and microbiology before entering the financial industry. Having headed up a team of equity analysts and various editorial teams, in recent years he has made his name as an author of books. His most recent work is called “Wie rette ich mein Geld?” (How Can I Rescue My Money?).

For times of uncertainty

Whenever times are uncertain, gold enjoys an upswing. Central banks have bought up gold en masse over the last seven years, and there is no end to this trend in sight. These gold purchases account for around 10 percent of global demand. At present, China and Russia are among the largest gold buyers.

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