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Comment by fanzhang | Hacker News Reader

According to the article, the gold bars are actually high-purity real gold. Then the difference in price must be the small markup that branded stamped gold bars get. This seems very different from the normal forgery I would expect where the forger gets a large fraction of the bar's value.

If the bar is actually real gold, the nature of the damage is different. It's less about undermining gold than it is about undermining the brand of the stamp.

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As others indicate the problem isn’t the gold, the problem is the provenance of the gold. It’s used to launder money.

Sure. But if you’re accidentally in possession of one of these bars, it’s not like you’ve been scammed into buying lead with gold paint. You still own the amount of gold you thought you owned.

>This seems very different from the normal forgery I would expect where the forger gets a large fraction of the bar's value.

The only way to make passable fake gold bullion based on weight is to use tungsten clad with gold, and even that is trivial to detect with any proper equipment (which can be hard commercially starting around the cost of an ounce of gold) if the cladding isn't sufficiently thick.

Silver is faked way, way, way more wildly.

I'm a mod of /r/silverbugs and I've been compiling a list of fakes members of the sub have found over the years, there's some really fake gold in there too https://www.ryanmercer.com/ryansthoughts/2014/8/22/fake-silv...

> The only way to make passable fake gold bullion based on weight is to use tungsten clad with gold

<hat scientist="mad"> Couldn't you, say, mix plutonium with a small amount of lead to dial in the weight you need? </hat>

Metallic plutonium is far rarer and more tightly controlled than gold. There is no civilian market for it. Building a new plutonium separation-and-metallization facility for processing spent civil nuclear fuel is more expensive than a new gold mine. Plutonium is also easy to detect by its radioactivity.

Yes, I know all of that, was just asking why this would be detectible by weight. Picked plutonium for the lulz.

It looks like osmium or platinum would be cost effective, at today's gold prices.

I see, you were challenging the "The only way" part of the statement. Yes, any metal alloy or hollow body with a density matching gold could be used to pass density based tests. The natural choice is the cheapest metal of sufficient density -- tungsten.

Platinum was historically used to dilute gold by alloying before it became valuable in its own right and chemical tests improved.

"Gone Platinum: Contraband and Chemistry in Eighteenth-Century Colombia"

https://www.vianolavie.org/wp-content/uploads/sites/5/2015/0...

Platinum being cheaper than gold is one of those random facts that makes the world seem seriously off-kilter to me these days. It used to be much more expensive.

Would depleted uranium be cost effective?

For some weird reason, uranium is not as dense as gold.

I did some research. While uranium atoms are heavier then gold atoms they are also bigger so they don’t pack as tightly.

I am really interested in learning how to validate that any gold I buy is legitimate. I didn't realize that was possible for "just a normal guy." Do you have more information about this? Like, is there a guide?

Obviously the first thing to do would be to get the equipment you mention to detect tungsten. But what about the "if the cladding isn't sufficiently think" issue? How do you deal with that possibility? Would you have to drill into the gold, or something?

>I am really interested in learning how to validate that any gold I buy is legitimate. I didn't realize that was possible for "just a normal guy." Do you have more information about this? Like, is there a guide?

Nitric acid and 'touchstone' are an ok start, but if you have a larger specimen it could just be clad.

https://www.wikiwand.com/en/Touchstone_(assaying_tool)

You can buy that kinda stuff at sites like https://www.goldfeverprospecting.com/goteki.html which have the black stone/touchstone, test needles, acid etc.

You can also do electronic testing, this used the conductivity of the specimen to give you a (generally accurate) idea of what purity of gold you are dealing with, this is usually used for jewellery. It's alright if you are familiar with gold jewellery, have a kt stamping and just want to do a quick non-destructive test.

You can do a specific gravity test via water displacement.

You can do XRF testing (if you've ever watched Cody's Lab he has one of these handhelds they vary in price and quality).

But if you really want to know for sure you have to do destructive testing like fire assay. If something is decently thick you'll need to drill it too, you'll even see this with silver once you start to get to the 100 troy ounce range sometimes.

Thank you for taking the time to write this up!

Yeah, Cody's Lab is great.

Would buying gold coins as opposed to bars avoid this issue? I mean, I'd still want to test using the chemical and electric kits you mentioned. But is it safe to say that you can't hide tungsten inside a coin, and/or is there a foolproof way to detect that---without drilling it---since coins are thin? I really don't want to have to use a destructive test.

Since this is a startup site, if the answer to my question about coins is negative, I wonder if there could be a market for gold that is shaped in such a way that it can be easily verified? I did run across an outfit selling tiny gold "squares" that you could break off and give to people, but can't find it now. So maybe the idea of gold that you can 100% verify at home has already been done, though I don't think that was spiel.

Totally agree. This is more akin to "conflict diamonds" - where the provenance is important.

Ultimately, the powers that be want to control the money supply and dollar flows. If gold is coming from an "unauthorized source" this disrupts the stability of the system.

I know this sounds a bit "conspiracy theory"-ish but I've come to view the global banking system in such a light: there are a few powerful players (namely the US) that need to know where money is flowing at all times.

That's not the case : people like to say that it is the case but "conflict diamonds" are used all the time, all over. It is the open secret in diamond district in NYC and among the dealers to the stars in LA and European capitals.

It's about money laundering. The stamps give a sense of authenticity, that the gold came from legitimate sources.

By faking the stamp, gold from other sources (e.g. conflict zones) can be passed off as being from Swiss refineries, and thus used to launder money.

Sorry, but as a layman I don’t get it. How does putting a fake stamp on a real commodity item help me to launder money? Is it like shoes where an identical product with the right logo costs more? This wouldn’t seem to affect anyone except the refinery who wanted to charge more for a logo, and I don’t see how it ties in with money laundering.

The way I see it:

Say you've got a source of gold that no one else will touch (illegal mine, sanctioned country, slave labour, stolen gold, etc). It costs you way below market price, but no one will buy it from you.

You pour it into bars, stamp it with fake brands and sell it at market price to anyone you want.

Instant profit and your hands/money are clean.

Certain parties operating in the UAE will touch it. This is just one further step away from selling it as jewlery.

https://www.hrw.org/news/2016/04/12/dispatches-child-labor-d...

I tend to think the article is trying to inject some shadow over gold market, like in "careful with buying gold, you'll probably end up buying a bar of rusty iron". You have to read four paragraphs to read the first explanation that there's no problem with the gold quality.

Gold may be the dirtiest commodity out there. There are plenty of people that buys gold without worrying about its origins, to immediately melt it into something else. People that doesn't care where a meth head got this 24k gold necklace, will trade it for about 10% its value and melt it into jewelry again.

I'm sure the last worry of people buying gold bars is the source of them, specially if you can get them at a small discount. "Hey, look: I'm getting rich selling tobacco to children, weapons to both sides of a war, paying doctors to prescribe my drugs, flooding the oceans with crude oil... but that gold origin is what worries me at the end of the day."

So, like Die Another Day, where that villain takes blood diamonds into Iceland to obscure their origin and sell them like they came from there?

Some unsavory regimes are in control of natural resource mines (like gold or diamond). In an attempt to withhold funds from these regimes, it’s common to not buy gold or diamonds that came from these places, despite them being the same physical product.

By counterfeiting the stamp, gold from these places can be passed off as being from one of the acceptable regions of the world. This is effectively smuggling items through a metaphorical blockade.

The stamp lends a level of surety about the product both in origin and quality. If I'm buying a bar and I know it comes from refinery X with a long reputation I don't have to worry as much about the bar being gold/silver/platinum at the stated quality. It's not perfect but with other documentation about the source that matches what the bar is telling me it provides a level of certainty. I worked in my family's pawn shop as a kid and the rare chance to buy a bar (I only ever bought a silver bar so it wasn't as big a deal) was always stressful because there's no good way to check the quality of the whole bar (this was before the advent of the handheld devices but even with those you have to worry about it being say lead with a thick layer of gold around it).

Actually it's not _that_ difficult to do transmission X-Ray diffraction measurements. Or for gold, just measuring density. You do need to do the latter to like 5 significant digits, but that's not hard per se.

Density isn't hard in a technical sense it's just a pain and you have to have the resources to do it. Namely a way to accurately measure the displacement which wasn't something we had.

A majority of our gold testing was designed for jewelry and used a rough glass square and an acid blend for the different major carats of gold we would see. It worked by rubbing off a small part of the gold onto the glass then adding some acid and watching it's reaction, if it wasn't gold or was lower purity it would dissolve and disappear quickly. It was rudimentary but it worked well enough, there were some subtleties with exactly how it should react that you learned over time.

Try walking into your local bank/gold dealer and selling a Swiss marked bar of gold or one that has the the markings of a drug cartel and see which you would prefer to sell...

If one replaces gold with crude oil then the gravity of this becomes clear.

What if Venezuela is smuggling its camouflaged crude oil inside Norwegian oil tankers?

Big deal. There's a glut of oil and a dearth of gold.

I hear rumors that there are exactly as many units of oil sold as units of oil bought, and the same holds true for gold. I honestly have no idea what you could mean by saying that there's a glut of one and a dearth of the other.

By that logic, you could never have an excess or dearth of anything.

That isn't true, something being bought at the rate it is produced means that demand outstrips or meets supply. No excess, possible dearth.

Let's say I manufacture a million widgets and can only sell one of them. HUGE excess.

Now let's say someone wants to buy a million widgets, but it takes me 3 weeks to build one. HUGE dearth.

I agree with you, but that's not what gp wrote:

> I hear rumors that there are exactly as many units of oil sold as units of oil bought

Gp compared the number of items sold with the number bought, not taking into consideration the number manufactured.

And then you adjust your prices until supply and demand are back in balance. The excess/dearth, by that overly simplistic definition, becomes roughly 0. Even though the underlying issues haven't gone anywhere.

Seems like the other way around to me. Most oil gets used pretty quickly after it’s produced. Most gold sits in vaults doing absolutely nothing.

Sitting in vaults is what gold does. It's being "used" as a store of value.

Just because it isn't being burnt up doesn't mean it's providing no utility.

No particular quantity is needed to fulfill that function. If the gold supply were half as big, then each bit would store twice as much value and nothing would change other than the vaults being smaller. We have way more gold than is needed to do what it’s used for.

You're being reductive. If supply is the only thing that matters, then why has the price of gold continued to rise even though we mine thousands of tons each year?

Saying that there’s a glut of oil and a dearth of gold based on their prices is pretty reductive too.

It’s a simple thought experiment: what would the world look like if there were twice as much X, or half as much X, than there actually is?

For X=oil, there would be profound changes. Half as much would require a totally different looking economy. Twice as much would enable big changes.

For X=oil, nothing much changes. The industrial and decorative uses continue as they do now. The “store of wealth” uses just have a ~2x difference in $/kg compared to now.

Why does the price of gold continue to rise? Because enough people think they’ll be able to sell it for a good price later.

The top 15 countries with the largest oil reserves together have over 1.5 trillion barrels of oil remaining. There's more in the remaining countries. [1]

Edit: Annual world consumption of oil is about 100 million, so we have about 15000 years of reserves left. [2] That seems to me to be a glut.

1. https://www.visualcapitalist.com/map-countries-most-oil-rese...

2. https://ycharts.com/indicators/world_oil_consumption

According to your links, worldwide consumption of oil is 100 million per day. That’s 40 years of supply if consumption stays steady.

How long will current gold reserves last?

Look again:

"World Oil Consumption measures the number of barrels that are consumed worldwide on an annual basis. It is an indicator released by BP. This metric tends to trend upwards except for a small dip in the 1980s and 2010. Interestingly enough, 2010 was also the time that Crude Oil prices plummeted because of supply and demand concerns."

15000 years. GLUT.

“World Oil Consumption:99.84M bbl/d for 2018“

That /d means “per day.”

Your other link has the same figure. Or search “world oil consumption” and find a bazillion other sources all saying it’s per day.

This doesn’t even pass a basic smell test. That’s about 3 billion gallons. That’s about 10 gallons per American with the rest of the world getting nothing. Do you really think worldwide oil consumption is 10 gallons per American per year? The average American driver drives twelve thousand miles a year!

Ah, you are correct with the daily usage amount. I figure in about 10-15 years, that will drop to maybe 1/4 of the daily use with the solar->battery->car upgrade that society will engage in. So, I'd stretch it out quite a bit further than 40 years.

The oil's being burned and there's a finite supply. The gold will still exist in some form after the oil runs out.

Big deal for Maduro.

In their personal capacity, the vast majority of people would not care if their oil was sourced from Venezuela.

How could any country be worse than Saudi Arabia?

North Korea.

>In their personal capacity, the vast majority of people would not care if their oil was sourced from Venezuela.

To add to this, oil is a bit different in the simple fact that you need some level of skill to work in that industry and you're generally getting a livable wage (if not a very nice one) whereas gold mining in some countries is still done by what are effectively slaves (even by children).

Ignoring the moral problems of all these countries ...

Oil is very different depending on the origin. Some oils have more Sulphur, some oils have more tar-like parts. Some oil is very dark and some is almost transparent-yellow.

All these differences are fixed in distillation that separates the parts and removes the impurities, but not all distillation plants an handle all the types of oil.

Anyway, after distillation most people care only about the price.

https://en.wikipedia.org/wiki/Sour_crude_oil

https://en.wikipedia.org/wiki/Sweet_crude_oil

True enough but the gold we are talking about is real gold and basically as-advertised; the fake part is the branding. So if we care about oil source because of the quality of the oil the original analogy isn't relevant here - it was meant to indicate that there was a moral reason to track the source.

But with oil that doesn't make sense because everyone is happy to buy from the Saudis, whose last scandal involved bone saws and acid vats.

It isn't helpful to the conversation to replace gold with oil.

Also, everyone can buy from the Saudis because their oil makeup actually varies quite a bit depending on where it’s from in SA.

The only people talking purity are the ones that read the headline and not the article- please don't comment if you didn't even skim it. This is purely about the branding of the gold, not the quality. It's like if someone sells a fake Gucci bag that's actually the exact same quality, materials, and even production process as a real bag. The branding is the lie, not the product.

Don't worry, I had read the article.

Gold is extracted and usually refined locally, perhaps it is exported as an alloy with Silver or Platinum or other metal. After more refinement it can be converted to gold bars.

Oil has more variety, it's a mix of a hundred (thousand?) similar compound and it's exported (almost?) raw. So the composition and the level of the impurities vary a lot from the different sources. You can't ignore the source of the oil because your refinery may not be able to use it.

A better comparison is gasoline. The difference of gasoline with a bar of gold is that gasoline is still a mix of somewhat similar substances, but the variation is small. There are many variants, with different octane rating and different additives. It's not 100% true, but gasoline is somewhat fungible and you don't care too much about the origin if it has the quality you are looking for.

you can also identify where oil has come from based on a sample of it. Oils have unique signatures for different regions.

I'd like to apologize and say my "read the article" self-righteousness was directed at the OP, not you- I replied to the wrong part of the thread and the sub-par reader I'm stuck with using doesn't allow editing/deleting. I also agree that gasoline would be a better comparison than oil.

(No problem. Let's hope your comment get's back to black soon.)

You do realize that most of "fake Gucci bags" are made on the same factories as the "real Gucci bags" typically on the same line except that they are FOB <location of the factory in China or Vietnam> rather than FOB a distribution facility?

That's EXACTLY my point, Mr. notyourday. Why else do you think I said that bit about same materials and same manufacturing process? The problem with the gold discussed in the article is the exact same issue with the bags in this context.

But gold’s value is not based on the brand, where as I suspect the opposite of handbags. Gold’s value is in the material itself. It’s fungible. It’s a pure element. Brand is relatively meaningless. As it should be.

So then it is not a valid comparison to substitute gold and oil as an analogue.

The Gold in this case is the exact same as the other gold it is reporting to be

I would have assumed that someone buying a $10M tanker load of oil would do some basic analysis to check the quality? Presumably even if it came from the purported country of origin, it could still have variations in quality that the buyer would want to confirm upon delivery?

That would be bad for a oil refinery as different crude oil sources have different contents. Some refinery must corrosion resistant metals or the crude will corrode them quickly, others can use cheap iron pipes.

This assumes the refinery isn't in on the fraud. If they are in on it they know what they are getting and there won't be a problem.

Of course I don't know the grades of oil from either place. (if I did know enough I'd probably not be allowed to talk about it...) It could be this substitution is fine for the refineries.

There is blending that takes place before counterfeit/smuggled oil is used so it meets the API/spec of the refinery.

You can be sure refiners are testing before anything runs through the plant...

Different wells produce very characteristic product that's hard and expensive to mask. You could tell it from API gravity and sulphur content, among other things.

See: https://en.wikipedia.org/wiki/List_of_crude_oil_products

So I don't see how you could economically camouflage crude oil from relatively simple chemical tests.

The question is are governments/companies checking and monitoring that actively enough to catch it or do they only check when they have suspicions about the provenance of some oil already.

> Then the difference in price must be the small markup that branded stamped gold bars get.

The bid/ask spread on the gold bars at the same dealer is close to 30%. The other markup is peanuts.

That's why it gold as the "investment" is mostly sold via day time infomercial on second rate TV networks ( the ones that currently broadcast in 480i ) and second rate cable channels as well as promoted by the likes of Glenn Beck right next to "have your own seed bank so you can plant your own garden for food when the economy collapses".

JPM made a lot of money serving those outfits but for it gold bar is just a blob of a certain weight and certain purity.

Someone else suggesting gold as an investment is Ray Dalio, who runs the world's largest hedge fund. As part of a portfolio, it helps because it's a largely uncorrelated asset that tends to do well when everything else is crashing.

Of course, if you're doing that you're probably going to buying GLD or IAU, which closely track the spot price of gold. Or maybe you'll use an outfit like BullionVault, which has a spread comparable to large stocks, nowhere near 30%.

> Or maybe you'll use an outfit like BullionVault, which has a spread comparable to large stocks, nowhere near 30%.

Which does not provide delivery of the gold bars.

In a negative-interest-rate environment, gold is also more attractive, since 0% interest is better than -X% interest.

You are looking at the wrong dealers, the non "scam" dealers for say 1 ounce gold coins have a 3-5% difference between their buy and sell prices. https://www.providentmetals.com/1-oz-us-american-gold-eagle-...

These are not gold bars.

This graph comparing 20 year total returns suggests another reason gold is considered by some to be a worthwhile “investment”:

https://twitter.com/charliebilello/status/116655914552655052...

I asked a discount broker about buying physical gold back in the 90s and was told it would cost about 10%.

"about 10%" becomes about 15% to buy. That's from spot price up.

When you want to sell it, it will become "about 10%" from the spot price down aka about 15% in reality.

Now do the algebra.

I think it's not only that, it's allowing smuggling of gold that isn't sourced ethically, which is quite important to some people -- and also does, as you say, undermine the brand as well.

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