Why “Gold Bugs” are considered nuts
For years I have wondered at why some people who look at so called “gold bugs” as tin foil hat conspiracy theorists.
When I started my education into all things economic, the history of money, types of money, the way different types of currencies were used throughout various cultures and empires, the cycles they tend to follow, as well as how that has evolved into the economic system of global settlements and currency flows today, I heard these comments now and then that always seemed to position people who were bullish on gold as conspiracy nuts.
Today I finally see why this may be the case.
The gold bug intarweb is currently ablaze with people running in circles and screaming the sky is falling because of a recent article alleging that an LBMA depository in Hong Kong was found to have 4800+/- bars of LBMA 400 ounce good delivery bars to be filled with tungsten instead of gold.
While I never discount such things when they first appear because certainly such a thing is possible, after further study into the matter it seems clear that none of this is verifiable.
Some of these claims are truly fantastic, such as
“I’ve already reported on irregular physical gold settlements which occurred in London, England back in the first week of October, 2009. Specifically, these settlements involved the intermediation of at least one Central Bank [The Bank of England] to resolve allocated settlements on behalf of J.P. Morgan and Deutsche Bank – who DID NOT have the gold bullion that they had sold short and were contracted to deliver.”
These conclusions are based on what? Where is the evidence?
Another amazing statement:
“reports of 400 oz. “good delivery” bricks of gold found gutted and filled with tungsten within the confines of LBMA approved vaults in Hong Kong.”
Reports? Reports by whom?
I have spent a few weeks searching my sources for information to lend any credibility to this story, and have found none.
This idea of the tungsten bars is supposed supported by this statement:
“If anyone were contemplating creating “fake” gold bars, tungsten [at roughly $10 per pound] would be the metal of choice since it has the exact same density as gold making a fake bar salted with tungsten indistinguishable from a solid gold bar by simply weighing it.”
This of course assumes that a gold bars purity is determined by weighing it? This is a great absurdity. Purity is not determined by weight, and I have never heard weighing bars being used as a means of determining the authenticity of an LBMA bar, ever.
This gets even better:
“Here’s what I now understand really happened:
The amount of “salted tungsten” gold bars in question was allegedly between 5,600 and 5,700 – 400 oz – good delivery bars [roughly 60 metric tonnes].
This was apparently all highly orchestrated by an extremely well financed criminal operation.”
Where do these fantastical “facts” come from? 60 metric tonnes!!?! Highly financed criminal operation? Sources, please?
But the rumor plot thickens even more, and now it is a refinery in the US itself that produced these bars:
“Roughly 15 years ago – during the Clinton Administration [think Robert Rubin, Sir Alan Greenspan and Lawrence Summers] – between 1.3 and 1.5 million 400 oz tungsten blanks were allegedly manufactured by a very high-end, sophisticated refiner in the USA [more than 16 Thousand metric tonnes]. Subsequently, 640,000 of these tungsten blanks received their gold plating and WERE shipped to Ft. Knox and remain there to this day. I know folks who have copies of the original shipping docs with dates and exact weights of “tungsten” bars shipped to Ft. Knox.”
This is the part that I find truly unbelievable, and once again (seems to be a pattern here), unverifiable.
1. Was this “allegedly” (alleged by whom?) very high-end, “sophisticated” refiner in the US an LBMA refinery to begin with? For someone who has no idea how the LBMA system works, of course this detail would be left out. Heres a clue, if it was not an LBMA refinery in the first place then the bars would never have been delivered as “LBMA good delivery” to this “alleged LBMA vault” in Hong Kong.
2. The author says these tungsten blanks were manufactured to 400 oz of weight, is that, exactly 400 oz? Again this indicates the lack of industry knowledge this author has, because no LBMA bar is exactly 400 ounces – they are all ROUGHLY 400 ounces of gross weight, but 400 ounces of FINE weight which is determined by multiplying the fineness of the bar by the gross ounces of the bar in weight.
So lets say for a second that this preposterous story were true – and there were hundreds of thousands of these bars manufactured to precisely 400 ounces, plated with a fine layer of gold, then shipped around the world.
Pure gold bullion is a very soft metal, and if the bars were indeed manufactured to 400 ounces weight they would have a very thin layer of gold, because a thick layer might make the gross weight suspiciously above the typical gross weight of an LBMA bar.
Because gold is soft enough to scratch without much effort, this thin layer would probably be removed in enough places just by normal handling to blow the scam.
Not to mention drill sampling and other methods used by LBMA entities on occasion to determine purity.
Drill Sampling
This gentleman also claims
” I know folks who have copies of the original shipping docs with dates and exact weights of “tungsten” bars shipped to Ft. Knox.”
Ok, where are these copies of shipping docs? In the internet age its pretty easy to anonymously produce such information for all to see without sacrificing a persons identity, so lets seem them!
Once again the pattern here seems to repeat – none of this is verifiable.
It REEKS of internet rumor-mongering.
On top this, preposterous statements like
“Apparently, the global market is literally “stuffed full of 400 oz salted bars”. “
does nothing to help his case either.
In an earlier part of the article he claims that 1.5 million of these bars were made, half was delivered to Fort Knox (where according to this person they still reside to this day, again, with no evidence) and the other half was sold into the global market place. Ok, lets say this is true for a moment, that would be about 9500 tons of gold give or take sold into the market, out of a globally accepted number of above ground gold in the neighborhood of 145,000 tons.
How does 9500 tons out of 145,000 tons equal “literally “stuffed full of 400 oz salted bars””???
The rest of the article is essentially a string of circumstantial evidence, which taken separately could mean something, but if the first half of the article is intended to establish credibility for the second half of the article then this guy has seriously blown it.
In my opinion, this is precisely the reason “gold bugs” have such a horrible rap.
To be clear, I will point out that my perspective comes from someone actively involved in the bullion industry, and as such I have information flow come across my desk, not just from intarweb analysts but from sources within the professional community, and I can say that not a whiff of evidence corroborating this guys story is coming from any source aside from this person himself.
When I first heard this story I was seriously interested in finding out if there was truth to it.
In the future if this person is vindicated I will be the first to say I was wrong. He has not, however provided anything in terms of verifiability, which when making statements as wild as he has, looks really, really bad.
Sadly, it appears that I may have finally found the reasons why gold bugs are considered nuts.
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/gold/t24_au_en_usoz_2.gif)
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/silver/t24_ag_en_usoz_2.gif)
November 15th, 2009 at 8:09 pm
Alex: I don’t disagree, and would expect many of the claims of that community to not hold water. You’ll note that I don’t often post on the gold market, partly for that reason.
However there is a case to be made that there might be trouble ahead. Humans are sadly human, and we are in the presence of material evidence that the banking system as a whole has been fiddled with in quite large doses. By humans.
Also, in comments, you say “and I should not say more on that.” Well, precisely: this means that the good evidence we need for both bad and good events is simply not available. So even as the goldbugs’ stories are often laced with wild speculation propped up on thin facts, so goes also the credibility of the more formal press. When a gold bank puts out news that gold is going up another $50, does that mean that this is serious financial reporting, or are they trying to front-run their customers?
Given that practically all of the real information as to gold reserves and positions is locked up somehow, we’d be a bit naive not to assume the financial crisis rot is in there somewhere. It may not be likely we can figure out where, though, before it happens.
November 16th, 2009 at 2:01 am
you guys will love this:
http://www.tungsten-alloy.com/en/alloy11.htm
A Chinese company called Chinatungsten is advertising imitation gold merchandise on its website. The following quote is taken directly from their Tungsten Alloy for Gold Substitution page:
“a coin with a tungsten center and gold all around it could not be detected as counterfeit by density measurement alone… We are well accustomed to exploit more innovative applications of tungsten products. Gold-plated tungsten is one of our main products.”
http://www.howestreet.com/articles/i…ticle_id=11482
http://www.commodityonline.com/news/Tungsten-and-its-use-in-making-fake-gold-22919-3-1.html
November 16th, 2009 at 2:22 pm
The original article I read had accompanying local newspaper articles reporting the scam. There was a Singapore headline, Bangkok Post, and a few others. There were quotes in the articles from “official” Chinese sources. Of course, it’s not my article, I don’t have the specifics but I’ll try to find them for you now.
Did you really spend time trying to verify these things? I don’t think you did, otherwise you would’ve found the articles I mentioned above.
I don’t care, I don’t have a dog in this race, but whenever I see someone resorting to the “conspiracy theory, Tin Foil hat” disqualification I take offense.
Only because the fact that Germany was loosing World War Two, that fact was a tin foil hat “Conspiracy Theory” in Nazi Germany, and generally scoffed at, the same way you scoff at any “theory” about gold manipulation.
The fact that our government was injecting black men with Syphilus, and monitoring the disease progression, rather than curing it was a “conspiracy theory” until the Government paid reparations to the victims families.
Whenever someone is in danger of being exposed, we hear the “Tin Foil Hat” defense. “Conspiracy Theories” are more often manifestations of leaks, or security failings in confidential, secret, or clandestine government operation.
Calling people nut cases because they look into anomalies is a good way to discredit their findings as false in the event they uncover something damaging in many cases.
Most conspiracy theories, while perhaps misguided, are based on some kernel of truth.
November 16th, 2009 at 3:41 pm
Hi Richard thank you for stopping by and commenting.
I did actually search for ways to verify this – it behooves me to know if its true or not – I found nothing.
I also agree with what you said regarding painting any group of people as crazy, and I have not once in years of covering the gold and silver markets have said anything like that. In fact I think I allude to as much in the article. The reason I have done so is to point out that if we are to be taken seriously in the gold community then our claims must be substantiated with facts and full evidence or it gives us all a bad reputation.
If you read other articles I have written you will see I dont scoff at manipulation at all, again I am simply pointing out that this particular claim is not verifiable by anything I have found (more importantly been unable to find). If you are able to bring to light the source information (credible source, please), I will be the first to thank you.
If you read my article, you would see I am not saying that the story is even impossible, I am saying he gives no sources or ways to verify his claims, which therefore looks bad, and it does.
As you say, I am looking for the kernel of truth.
November 17th, 2009 at 1:19 pm
Indeed , Gold bugs may be nutz, but at least their craziness has some historical evidence that backs up their position. An ounce of gold today will buy you roughly the same amount of actual goods it did in 1971, when the USD went FIAtT. Can’t say that for the greenback now, can you? Eventually, all FIAT currencies lose their value; this is a matter of record. So if the Gold Bugs are insane, then those following the Paper Promise Pusher’s religion must be loopy well beyond that of their Au loving counterparts. Makes me wonder just who is really wearing the ‘tinfoil hats’, or maybe they come in different styles; one for the ‘conspiracy theorist’ and a different cut or brim for the ‘mainstream denialist’…
November 17th, 2009 at 10:22 pm
I agree that hard evidence is lacking here. Everything seems to come from anonymous unverifiable sources. But you’re wrong in saying the story can’t be true because such tungsten bars would be easily detectable. The implication is that governments/central banks very knowingly and deliberately put these fake bars into deep vault storage to replace the real bars which were then sold to raise some revenue and suppress the gold price. If the story is true, it appears the intention was that the bars would just sit there, stacked in perpetuity, looking pretty and no one would be the wiser.
Furthermore, the article mentions 16,000 metric tonnes not 9,500. And compared to the 29,000 metric tonnes which western central banks claim to hold – that is a big deal.
November 18th, 2009 at 8:13 am
Hi Hal, thanks for commenting,
I had a quick thought about this:
“The implication is that governments/central banks very knowingly and deliberately put these fake bars into deep vault storage to replace the real bars which were then sold to raise some revenue and suppress the gold price. If the story is true, it appears the intention was that the bars would just sit there, stacked in perpetuity, looking pretty and no one would be the wiser.”
I agree with you that there could be a motive to do that if you were the US for example, because there is an interest in maintaining the “strong dollar policy”, and since the gold reserves of the US have not been audited since the mid-50’s who knows, maybe there is some truth to it in the US reserves if bars have not been handled in decades.
This allegation was in regards to vaults in Hong Kong – if you are China, are you so easily duped into selling off your own gold reserves to prop up another nations currency? I personally think that is not plausible.
November 18th, 2009 at 9:39 am
I agree China would not sell its real gold to support the dollar. But China had virtually no gold in the 1990’s, they probably were not in on the scam. But some European countries might have been involved, with or even without their knowledge. Most of Germany’s 3,400 metric tonnes is stored by the Federal Reserve deep under New York City. When Germany recently asked for its gold back, there was a “big stink” and never a straight answer on why the gold couldn’t be returned. It makes me suspicious? Should I wear a tin-foil hat?
But that leaves the question of these bars’ origin. Assuming once again the story is true, let me speculate. The bars were part of the gold Hong Kong owned which was stored in London. Recently, we know they demanded their gold be sent to their newly built storage facility. Why would the London metals exchange send fake bars? I see three possibilities. 1) A Screw-up. Someone not in on the scam sent the wrong bars from the wrong storage room. 2) Greed. Someone couldn’t bear to part with real bars. So he sent the fakes figuring the Chinese would simply note the weights and serial numbers before piling the bars up in a deep dark storage vault. The sender may have hoped that when the fraud was discovered decades hence, all the guilty parties would be long dead. 3) Or worse, maybe London didn’t even have enough real bars left to send the genuine article to Hong Kong.
November 18th, 2009 at 10:27 am
Hal, some great thoughts and glad it stirs up the thought process
“But some European countries might have been involved, with or even without their knowledge.” This part I tend to doubt – any volume transacted in these bars would inevitably lead to bars dropped, which leads to dings and dents, which if these were tungsten covered in a thin layer of gold the gold would come off and the scam would be blown.
“It makes me suspicious? Should I wear a tin-foil hat?” – Not at all, I think suspicion is very healthy and in fact a civil duty – I do not think people representing the gold community should lay serious allegations of this sort without verifiable proof – it makes all “gold bugs” look like fools – which is what I was trying to point out in the article.
“The bars were part of the gold Hong Kong owned which was stored in London” – Actually the original article alleged the bars were stored in a “Hong Kong LBMA Vault”.
I again, after personally handling these kind of bars, do not believe that a large quantity of tungsten plated bars could be transported and handled from one vault on one side of the world to another, or even across the street for that matter, without some quantity of them being dropped and therefore determined to be fake, or fail a random assay.
November 20th, 2009 at 1:01 am
“This part I tend to doubt – any volume transacted in these bars would inevitably lead to bars dropped, which leads to dings and dents, which if these were tungsten covered in a thin layer of gold the gold would come off and the scam would be blown. I can accept that perhaps in some dark corner of some vault there may be bars that have not been closely inspected in decades, but for bars that are actually handled and moved in a large quantity I dont think its likely they would pass inspection.”
Alex, layer of gold does not necessarily has to be so thin to come off easily if at all during normal handling. Those who allegedly pulled off this scheme could by trial and error determine the minimal accepted thickness of the gold. Remember, they had the gold to do it! Even if they make the thickness more than 2-3 millimeters they would make a nice profit by multiplying the bars.
November 20th, 2009 at 9:54 am
Leo, have you ever done this or are you speculating?
My thoughts come from a perspective of:
1. Having actually handled gold 400 oz bars
2. Personal experience in observing LBMA protocols
I am not disputing that a tungsten bar could be coated layers in gold. I am disputing this particular story because lacks credible and verifiable sources, and from personal experience I find it very difficult to believe.
If a person understands how LBMA fabrication, handling, and storage works it is clear how ridiculous the story is, unless the people who did this had the willing complicity of LBMA accredited entities.
I am far from convinced, and for two main reasons.
1. There still too many holes and un-answered questions here. Primarily, the author claims these bars came from a refinery in the USA. As I mentioned, the only way these bars would be accepted as “Good Delivery”, is if the bars never left the handling of LBMA accredited entities during its entire history from the refinery to the vault. In each and every step of the process, who handles the bars, and when is documented. If a bar were found to be fake, then every person who ever laid hands on them would be hauled in for questioning. If they originated at a refinery, it would be documented. If an LBMA accredited refinery did this, it would be stripped of its LBMA credentials. I cannot even fathom a refinery being willing to risk this, and even if they did, it would be stripped of its credential and we would know of it – the membership lists are publicly posted. If it happened over time AFTER it was in the vault, then someone was smart enough to defeat hundreds of years of evolved security technology in protecting this stuff and was able to smuggle a huge tungsten brick in and then a 12.5kilo bar of gold out (where would they be hiding that, exactly?), and do it a few thousand times? Now that would make a good movie!
2. All of the theories and assertions, while stirring to the imagination, are being put forth here from non-professional sources. Please do not take this wrong – but not a single industry professional has come forward backing this, or even the idea its possible. The gold industry is not new, its been around for thousands of years and this is not the first time someone might have gotten the bright idea to pass off fake gold as real. Dont you think people who handle this stuff professionally would have figured out a long time ago how to determine if its real or not? For this scam to work, it assumes that the people who professionally refine, handle, and vault gold are ignorant about their own industry, and that the Fed (or whomever is the malevolent entity behind such a wicked plot) is smarter than them all (thats a good one =p).
November 23rd, 2009 at 2:23 am
If you weigh a 400 oz bar in air and in water, you can calculate the metal’s density from : Density = ( weight in air) / ( ( weight in air ) – ( weight in water ) )
For Gold the figure should be 19.30 g/cm³, while a Tungsten bar would give you 19.25 g/cm³ or .9974 of the Gold figure. On a 400 oz bar that is over an ounce of difference, which would be discovered easily (it would be harder with a 1/10 oz coin).
November 23rd, 2009 at 8:03 am
Hi Dave, thanks for your comment.
You make an excellent point.
LBMA bars however are not exactly 400 oz, they are “about” 400 oz of fine weight – which is why weight alone is not used to determine authenticity of fineness.
Good Delivery Gold
minimum gold content
350 troy ounces (approximately 10.9 kilograms)
maximum gold content
430 troy ounces (approximately 13.4 kilograms)
Recommended dimensions (approximately): Top Surface 255 × 81 mm
Bottom Surface 236 × 57 mm
Thickness 37 mm
The physical settlement of a loco London gold trade is a bar conforming to these specifications.
The gross weight of a bar should be expressed in troy ounces, in multiples of 0.025, rounded down to the nearest 0.025 of a troy ounce.
Fineness: the minimum acceptable fineness is 995.0 parts per thousand fine gold.
Marks
* Serial number
* Assay stamp of refiner
* Fineness (to four significant figures)
* Year of manufacture (expressed in four digits)
Good Delivery Silver Bar
minimum silver content
750 troy ounces (approximately 23 kilograms)
maximum silver content
1100 troy ounces (approximately 34 kilograms)
minimum fineness
999.0 parts per thousand silver
Recommended dimensions Minimum Maximum
Length 250mm 350mm
Width 110mm 150mm
Height 60mm 100mm
The physical settlement of a loco London silver trade is a bar conforming to these specifications:
The gross weight of a bar should be expressed in troy ounces in multiples of 0.10, rounded down to the nearest 0.10 of a troy ounce.
Marks
* Serial number
* Assay stamp of refiner
* Fineness, expressed to either three or four significant figures
* Year of manufacture (expressed in four digits)
* Optionally, the weight, which, if included, may be shown in either troy ounces or kilograms
You can find further information about LBMA “Good Delivery” protocols and standards here: http://www.lbma.org.uk/delivery/definitn
November 24th, 2009 at 3:27 pm
A little note regarding comments: http://www.rapidtrends.com/2009/11/24/a-general-note-to-readers/
November 28th, 2009 at 2:27 pm
[...] such is just speculation, like the tungsten rumors, based on circumstantial research and there are no real credible and verifiable sources that I have [...]
November 29th, 2009 at 1:03 pm
Alex:
You say that ” Purity is not determined by weight, and I have never heard weighing bars being used as a means of determining the authenticity of an LBMA bar, ever.”
If you have a GoldMoney account you might login and view their “Vault Video”. This is a video of the Via MAT vault operation in either Zurich or London (I’m not sure which one). Upon receiving a pallet of 400 oz. Gold bars, the first thing they do is to log the weight of the pallet and then to log the weight of a random bar.
I believe these are LBMA bars but I have no way to verify this.
November 30th, 2009 at 7:04 am
Whether true or not, and which definitely remains to be seen with proof, it would only affect the price of gold to the upside.
If false, no change from today, if true=upside.
The tungsten rumors are not new, only on anything like this scale, and the alleged high-up conspiracy. Tungsten, as the most likely element for forgeries, has been known and talked about for years.
From personal dealings with refiners in Pforzheim, Germany (home of an LBMA accredited facility, as well as numerous other refiners), these forgeries are rare. There, apparently about 30 years ago, a few 100gr tungsten-core bars were seen. That is not much for forgeries. (can’t substantiate as conveyed in personal meetings). But it would show not much of a problem historically.
As to the poster above, who correctly points out the difference in density between gold and tungsten of -0.05, that COULD be made up using a denser material such as iridium or osmium, both of which are even denser than platinum, and are priced at 1/3 of gold. Only about 6oz of either would be required, worth it when one is faking $450k.
Doable, but rather farfetched of course.
While no one would “assay” a bar by density, as you point out, the whole idea of LBMA good delivery is that a reassay, especially an invasive one such as the drill method, is not deemed necessary, the proper state being guaranteed by the tracing method you point out. And even a non invasive method would not be very practical with tons worth of delivery, especially as the assay would have to be done at the time transfer at the vault (if subsequent how to prove that a swith did not take outside the vault).
These rumors may have been seeded just to sow discontent…
Regards!
November 30th, 2009 at 2:15 pm
This comment from the author is another clue that he doesn’t know what he is taking about:
“The HK bankers hoped to have 99% gold yield in their drill program for the resident bars. They found something like 1% instead and 99% tungsten. By the way, tungsten sells for less than $70 per ton, which makes its swaps for gold to be 60x more profitable than silver bar swaps. Another handy usage for the Gold/Silver ratio in calculations. ”
Since the whole scam is supposedly based on the principle that the specific gravities of gold and tungsten are the same, it makes no sense to make the comparison with silver, which has a specific gravity half of the other two!
December 4th, 2009 at 5:53 pm
Alex, at the end of your response to Hal on Nov 18 you stated, ” I do not believe that a large quantity of tungsten plated bars could be transported ….without some quantity of them being dropped and therefore determined to be fake, or fail a random assay.”
To that I say, some quantity of them DID fail an assay. That is just where this whole controversy originates.
December 4th, 2009 at 6:36 pm
Hi Jeff, thanks for commenting.
For me actually the controversy is not that there is an ALLEGATION that some number of bars have been found to be fake, but rather the lack of VERIFIABLE EVIDENCE that the ALLEGATION is correct.
Allegations of this sort are not new, the entire point of both my article and the ensuing discussing as far as I am concerned is that NO ONE, EVEN AFTER A FEW WEEKS can provide credible sources for the allegations.
If you have some source of information we can verify that no one has provided yet please come forth with it as myself and I am sure everyone else searching for the truth of this story would be pleased to see.
December 5th, 2009 at 8:27 pm
[...] down to La Estancia De Cafayate to enjoy some bife de lomo. In this episode I discuss the the tungsten gold rumors and what to [...]