GLD ETF full of fake gold?

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Submitted by Adebisi on November 23, 2009 - 9:53pm

Interesting story that if true means physical gold is way undervalued:

http://beforeitsnews.com/story/000000000...

The gist of the article is that there are between 1.3 million and 1.5 million in fake 400 OZ gold bars out there. The 'fake' part of the bars is actually tungsten. It's unclear from the article whether the GLD ETF tests the gold bars that they take delivery of, but they have a legal disclaimer that basically says there's no guarantee that the gold in the trust is actually real.

It will be interesting to see if this story has legs.

Submitted by scaredyclassic on November 23, 2009 - 10:29pm.

it's worse than that; they don't actually own any gold

Submitted by ucodegen on November 24, 2009 - 12:17pm.

You wouldn't use tungsten to 'salt' the bars. To much of a pain to work with. You can't pour molten tungsten into hollowed out gold bars because it would melt the hollowed out gold bar. Melting point of tungsten is 6192°F while gold is 1947°F. Machining tungsten to shape is also a pain. It is a tough metal.. so tough that it is used as the cutting bit in metal machining equipment.

If you are going to fill the bars, you would probably use a combination of lead and aluminum (621°F, 3632°F) respectively to get the weight right (aluminum centered within lead, centered within gold). Hollow out gold bar, suspend small aluminum bar within hollowed out segment and fill remainder with lead.

Submitted by Hatfield on November 24, 2009 - 5:22pm.

I own some GLD, so naturally this thread caught my eye. I googled around for more reputable citations and found this in my travels

http://www.popsci.com/diy/article/2008-0...

So I guess you would cast the tungsten first since it has a higher melting point, then cast the gold around it.

I'm still not sure what to make of any of this, but any ETF that holds physical gold could potentially be at risk.

Submitted by Nor-LA-SD-guy on November 24, 2009 - 5:36pm.

I think this is why maybe they made it illegal to own gold at one point in the thirties, and then they fixed the price,

I could see some panic if this ends up being true where everyone would suddenly only trust real gold they could hold in their hands. Just not possible, this again is why Gold will never and can never be the world currency base, just not even close to a 10th enough of the stuff.

It will go back to being just for ring's, jewelry and stuff soon enough.

Submitted by Hatfield on November 24, 2009 - 6:48pm.

No, gold ownership was made illegal in the 30s for a very specific reason: the dollar was pegged to gold, and there was a run on US gold reserves by foreign noteholders demanding redemption. Shortly after gold ownership was outlawed the dollar was devalued something like 30%.

Now that the dollar is not pegged to gold, it floats freely against it, so I don't know why private gold ownership would be outlawed again.

Submitted by Nor-LA-SD-guy on November 24, 2009 - 6:58pm.

Yea OK but at the same time I can't ever see it being the base for any serious world currency, and eventually it will just be a somewhat expensive novelty

Submitted by ucodegen on November 24, 2009 - 7:09pm.

So I guess you would cast the tungsten first since it has a higher melting point, then cast the gold around it.

True.. this creates a simple problem to solve in suspending the tungsten in the casting while hardening. You could also try electroplating or hot dip plating. It does mean that the outside may appear different that is if it is an already held reserve (you would be recasting existing bars). On the other hand, if you are trying to create 'fake' gold from ground zero and then inject it into the exchange, it is very effective.

http://www.popsci.com/diy/article/2008-0...
Note that your link referred to 'steel' being inside.. which is a little obvious. It is no where close to the density of gold. If they can get away with using steel.. there is a real problem. I wonder if everybody is now busy checking the density of what they have.

I like the quote in your reference.. at the end:

And let me tell you, it's a sad day for criminal masterminds when my fictional fake gold, designed only to trick a terrorist cell, is so much better than the real fake gold used to rip off a real government bank for millions of real dollars.

Submitted by ucodegen on November 24, 2009 - 7:09pm.

No, gold ownership was made illegal in the 30s for a very specific reason: the dollar was pegged to gold, and there was a run on US gold reserves by foreign noteholders demanding redemption.

Also more 'dollars' had to be created. The only way at the time to do that at that time, was to have the gold to back it. That is why people had to surrender their gold and got 'certificates'. The only exception was for gold in the form of coin.

Now that the dollar is not pegged to gold, it floats freely against it, so I don't know why private gold ownership would be outlawed again.

No need to outlaw it. Coin dealers or sellers of gold coin like to drum up this fear since in the 30's, the only way you would not have your gold confiscated was if it was in the form of coin.

Submitted by Nor-LA-SD-guy on November 24, 2009 - 7:19pm.

Guy's really, think this through a few minutes, OK sure there may be a panic at some point that would last maybe a few months until people realize that the world was not coming to an end and no the U.S.A. was not the "Weimar Germany circa 1920's". And once the economy finally starts to create Jobs in Ernest then Gold is just going to be the novelty it was before, nothing more.

Just My thoughts ,

Submitted by scaredyclassic on November 24, 2009 - 8:36pm.

yeah, gold's just a transient trinket. if you have any lying around, I'll be glad to buy it for 300-400 an ounce. it's not really worth anything anyway. heck make it $800 an ounce. I'll buy all you've got.

Submitted by patb on November 25, 2009 - 11:14am.

Nor-LA-SD-guy wrote:
Guy's really, think this through a few minutes, OK sure there may be a panic at some point that would last maybe a few months until people realize that the world was not coming to an end and no the U.S.A. was not the "Weimar Germany circa 1920's". And once the economy finally starts to create Jobs in Ernest then Gold is just going to be the novelty it was before, nothing more.

Just My thoughts ,

Gold has zero dividends, it's just a commodity like
cement, steel or wood.

Gold has a certain amount of convenience, but that's it

Submitted by peterb on November 25, 2009 - 11:50am.

Gold is tangible and has a long history as money and a store of value becuase it is very durable and not easy to find. Most commodities are consumables, gold isnt really consumed. Gold is an insurance policy against fiat unstability, fraud and govt's bad behavior.
Central banks and the IMF hold quite a bit of it. Why? Granted their not the best indictor of intellegence, but they do have a lot of power in this world. And they tend to control the quantity of "money" in the world.

Submitted by scaredyclassic on November 25, 2009 - 12:05pm.

cash isnt paying much of a dividend either.

Submitted by ucodegen on November 25, 2009 - 4:30pm.

yeah, gold's just a transient trinket. if you have any lying around, I'll be glad to buy it for 300-400 an ounce. it's not really worth anything anyway. heck make it $800 an ounce. I'll buy all you've got.

Of course you will buy it below current market prices... this tells me that gold may be in a bubble. You really don't want to hold onto it for very long - just a 'quick flip' - buy it at discount, sell at current market. If you were willing to pay a premium above current market, then it tells me that you really feel the price will go up enough to cover the premium you would be paying. But you are not offering a premium, you are offering to buy at a 20% discount..

Submitted by scaredyclassic on November 25, 2009 - 4:34pm.

i buy at market every single week, automatic debit investment, every spare dime i have in shares of CEF, GDX, SLW.

hell, i'll pay spot plus 2 percent on your gold coins, just not scrap jewelery.

Submitted by EconProf on November 25, 2009 - 4:42pm.

To go long on gold is to go short on this government. Investors are looking at the policies of this Fed and Treasury Department, and this Congress, and saying "Get me out of here". They are not (yet) voting with their feet by leaving the country, but are investing their money into gold and foreign stock markets. So far is year, their investments have rewarded them well.
Gold up about $18 more today.

Submitted by Adebisi on November 25, 2009 - 5:00pm.

ucodegen wrote:

Of course you will buy it below current market prices... this tells me that gold may be in a bubble. You really don't want to hold onto it for very long - just a 'quick flip' - buy it at discount, sell at current market. If you were willing to pay a premium above current market, then it tells me that you really feel the price will go up enough to cover the premium you would be paying. But you are not offering a premium, you are offering to buy at a 20% discount..

I think the test is, if you started off with gold, would you trade it in for U.S. dollars at the current market rate?

Submitted by partypup on November 25, 2009 - 5:15pm.

Hey Scaredy, how's that gold investment working out for ya? Thinking of selling anytime soon? ;-)

Gold is going to $2,500. After that, to the moon.

The dollar death is upon us.

My modest gold and silver investments have been netting $5-7K each day for the past 2 weeks. The paradigm has changed forever, boys and girls.

Submitted by Adebisi on November 25, 2009 - 5:40pm.

Nor-LA-SD-guy wrote:
Guy's really, think this through a few minutes, OK sure there may be a panic at some point that would last maybe a few months until people realize that the world was not coming to an end and no the U.S.A. was not the "Weimar Germany circa 1920's". And once the economy finally starts to create Jobs in Ernest then Gold is just going to be the novelty it was before, nothing more.

Just My thoughts ,

You've made a bunch of conclusory statements with nothing to back them. As long as the Fed continues to monetize the bad debt in the system, the dollar will continue to go down and fiat money substitutes (gold, silver) will go continue to go up.

Submitted by Adebisi on November 25, 2009 - 5:50pm.

patb wrote:

Gold has zero dividends, it's just a commodity like
cement, steel or wood.

Gold has a certain amount of convenience, but that's it

Gold has absolutely no convenience. Holding dollars is way more convenient. If I could convert the dollars in my bank account into gold by clicking a button then your convenience argument might hold some water.

Have you tried to buy physical gold? If you try to convert your dollars into gold coins, you will end up paying some premium for getting the gold in coin form. How should you value that 'coin' premium?

Have you ever tried to buy something using gold? Can you go into a bank in the U.S. and buy gold like you can in China? How can you be sure that your gold isn't fake? Have you asked your employer to pay you in gold? If so, what did they say?

Any way you look at it, the U.S. dollar is way more convenient than gold. The U.S. government wants it that way.

Submitted by blahblahblah on November 25, 2009 - 6:16pm.

Gold is the new oil.

Submitted by smshorttimer on November 25, 2009 - 7:10pm.

partypup wrote:
Hey Scaredy, how's that gold investment working out for ya? Thinking of selling anytime soon? ;-)

Gold is going to $2,500. After that, to the moon.

The dollar death is upon us.

My modest gold and silver investments have been netting $5-7K each day for the past 2 weeks. The paradigm has changed forever, boys and girls.

What's it matter? You're never going to cash in if you are a diehard gold bug.

Submitted by Nor-LA-SD-guy on November 26, 2009 - 12:31am.

OK I am starting to have a change of hart,

This can actually be good I am thinking, not like Oil or housing, it will only affect those with extra money to burn,

And besides this will put people to work prospecting for the stuff, especially here in California if the price actually gets to 2K per oz or so.

Maybe I can start making gold dredges , but with my luck by the time I get them built and ready to sell the stuff would probably fallen back to 700 or 800 an oz

Hey., Wait maybe I can just sell on line maps of the Dutchman's Lost Gold Mine.

Hmmm OK got to go things to do.

Submitted by scaredyclassic on November 26, 2009 - 8:38am.

"extra money to burn" is kind of a funny choice of words, because gold bugs talk about the "intrinsic value" of paper money ultimately being its use as firewood or toilet paper. When there is a lot of "extra money" to burn sloshing around, it might be better to put it into something less likely to be so easily produceable. like gold. but i like your train of thought. might do better renting out metal detectors at nice beaches though, since mining is pretty hard work.

Submitted by Nor-LA-SD-guy on November 26, 2009 - 10:22am.

I am thinking, this Dubai thing may actually cause a dollar rally, really , I think (not sure) but I think it was financed mostly in euro's.

May put a little more faith in the U.S.A. , just a thought.

It that not where haliburton went ??

Submitted by scaredyclassic on November 26, 2009 - 10:32am.

it's all interconnected. my fha loan could trigger the dubai default, which in turn leads to TG buying a flatscreen and the crash of gold prices. I doubt a dollar rally would be the result of anything other than completely unknowable forces.

Submitted by raty4R on November 26, 2009 - 10:47am.

Interesting that this happened on Thanksgiving. hummm...

Interesting that London stock exchange had "technical difficulties for most of the day. hummm...
http://www.marketwatch.com/story/bri...i...
Oh the largest stock holder of the lobdon stock exchange is a Dubai company, hummm...

Interesting that Barclays of London was pushing Dubai debt this month. hummm...
http://ftalphaville.ft.com/blog/2009...v...
Interesting that Earlier this year Dubai was positioning itself to become a hedgefund center. hummm...
http://ftalphaville.ft.com/blog/2007/03/...

Also remeber Dubai built a gold vault and was in the process of moving ALL their gold out of London and New York. hummm... payback?

I think this will cause the dollar to rally and gold silver to fall short term,
http://www.reuters.com/article/bondsNews...
It's conditioned reflex. Trouble in the world - jump to US dollars. but I believe it will be very short term.

Submitted by partypup on November 26, 2009 - 12:16pm.

"China, gold, and the civilization shift"

Unless we are to believe that the central banks of developing countries are engaging in a speculative bubblefest, then the price of gold is still terribly undervalued from years of COMEX paper manipulation. Broke and unemployed Americans selling their trinkets at kiosks in malls and lemming investors clamoring to GLD is not what is sending gold to the moon. Central banks are madly fleeing from the dollar - this is the seismic action that is moving the gold market by leaps and bounds. Gold rises by $50 per week when massive quantities are bought by central banks - not by hedge funds and Joe Six Pack - and that's precisely what has been happening.

The IMF just sold 10 TONS to Sri Lanka on Wednesday. India bought 200 tonnes in October, Mauritius bought 2 tons 2 weeks ago, and India is planning to buy the IMF's remaining stock next month.

http://www.google.com/hostednews/afp/art...

This ain't a bubble. You can expect the price of gold to return to $350/oz when the U.S. debt load falls under $1 trillion and the Fed raises interest rates to pre-2007 levels.

Good luck with that. And until then, as our currency flails in its death throes, you might as well accustom yourself to gold prices that will make your head spin.

"Stephen Jen from the hedge fund Blue Gold Capital has a warning for those who think that gold has risen far too high, is necessarily in a speculative bubble, and must soon come clattering back down.

...
Mr Jen is an expert on sovereign wealth funds from his days at Morgan Stanley. The gold story — essentially — is that the rising economic powers of Asia, the Middle East, and the commodity bloc are rejecting Western fiat currencies. China, India, and Russia have all been buying gold on a large scale over recent months.

Why should that stop when the AAA club of sovereign debtors is pushing towards the danger threshold of 100pc of GDP?

These new players account for almost all the accumulation of foreign currency reserves worldwide over the last five years, so what they do matters enormously.

After crunching the numbers, Mr Jen found that the share of gold in their reserves is just 2.2pc compared to 38pc for the Old World (perhaps we should just call them the deadbeats from now on). They would have to buy $115bn of gold at current prices to raise their bullion to just 5pc of total reserves, and $700bn to reach just half western levels.

The killer-term here is at current prices since any such move in the tiny global market for gold would send prices into the stratosphere.

http://blogs.telegraph.co.uk/finance/amb...

Submitted by Nor-LA-SD-guy on November 26, 2009 - 11:17am.

Yep , I am starting to think this is all good,

Gets to 3K an oz or so, then you can look at an able bodied person and ask, Hey why are you not out there prospecting for gold ???

Submitted by scaredyclassic on November 26, 2009 - 11:42am.

there is internet chat on the subject of yield for amateur gold miners. even in known gold places, the pickings are slim. you cannot earn a living, even at 3k an oz, but one occasionally gets lucky and finds a nugget. it will always be a hobby for the guy with the pan.

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