In the US, fake gold is now a growing problem that is not being tackled.
Congressman Alex Mooney (not Money!) has just written to the US Mint of the
growing problem of high-quality counterfeits. He also wrote a letter to the
Mint in November 2017 but the Mint responded that the problem was not
significant. But the US Secret Service has since briefed the office of
Congressman Mooney about the extent of the problem and the lack of supportive
actions of other agencies. There we have it – a complacent Mint on the
one hand and a Secret Service which is involved in fake gold on the other
hand. So this is clearly a major problem.
CHINESE GOLD “FACTORIES”
Counterfeit
gold coins have been around since the coinage of gold first started in the
Greek city of Lydia around 600 BC. Fake gold bars and coins are ubiquitous and
many owners of gold are not aware that they have fake gold. I realised the
widespread presence of fake gold when I was interviewed in Sydney by an
Australian television news team a few years ago. This team had just visited a
“gold factory” in China. They had covertly filmed the manufacturing of fake
bars and coins. They told me that they bought $500,000 of fake gold
for $500. These were gold bars and coins with well known brands of
LBMA refiners in Switzerland and Australia. For a layman it was not possible
to tell that they were fake. There clearly could not have been much gold in
these bars since the price was 0.1% of the value of real gold. It would
probably have been enough to scratch the surface to find the tungsten which I
assume was the metal inside.
FAKE GOLD WILL FLOOD MARKET
Learning
about fake gold factories in China gave me invaluable information of what
will happen when the gold price goes up. It became very clear to me that the
more gold appreciates the more fake gold we will see on the market.
The natural consequence of a higher gold price will be a surge of gold
factories around the world making fake gold. As gold goes to $2,000, $5,000,
$10,000 and much higher when hyperinflation sets in, there will be
opportunistic “entrepreneurs” flooding the gold market with fake bars and
coins. The coming gold mania will create a massive demand for gold and
desperate retail buyers will buy gold from any source, unaware if it is
genuine or not. The coming shortage of gold will force buyers to obtain gold
from whatever direction, whether it is Ebay or disreputable dealers.
BUY GOLD WITHIN THE CHAIN OF INTEGRITY
Eventually the media will catch on to the prevalence of fake gold and tell
buyers not to buy gold. Professional investors are unlikely to be affected by
this but many retail buyers could be badly hurt. The consequence of
the “Wild West” market will be a concentration of gold trading to the most
reputable dealers who trade within the chain of integrity. Some
smaller dealers will survive but only the ones who have established a long
term reputation of integrity and honesty. Any serious dealer must have the
testing equipment which can assure the quality of the gold.
The market is likely to concentrate to bigger gold dealers which operate
within the chain of integrity. These companies will only buy and sell gold
produced by LBMA (London Bullion Market Association) dealers and refiners.
But that is of course not enough since fake gold producers can make gold with
the markings of an LBMA refiner.
SWISS GOLD REFINERS DOMINATE WORLD MARKET
The absolutely safest way to acquire gold is to buy directly from a top
class LBMA refiner. The Swiss refiners have the reputation of producing the
highest quality gold bars in the world. Around 70% of all the global gold bar
production comes from the Swiss refiners. The majority of the bars made in
Switzerland have 9999 (4 nines) or 99.99% purity.
When our company (Matterhorn, GoldSwitzerland) buys gold for clients, we
always buy freshly minted gold directly from the Swiss refiners like Argor or
PAMP. That guarantees the quality to the client. There is another
very important factor that makes this chain of integrity totally unique. If
we buy freshly minted gold from a refiner for a client and the client (for
whatever reason) decides to sell the gold the next day, we would then sell
the client’s gold back to the same refiner. Even if the refiner receives the
gold in return in the same sealed boxes that he delivered to us, the refiner
would still melt all the bars down in order to guarantee the quality.
It is this attention to detail and perfection that makes the Swiss gold
refining industry totally unique and the biggest in the world. Gold
accounts for 29% of Swiss exports and makes it a strategic industry. This
also is a virtual guarantee that gold is unlikely to ever be confiscated in
Switzerland. Another advantage to deal directly with a refiner,
which a retail buyer cannot do, is that the refiner is always guaranteed
supply. The 3,000 tonnes of annual mine production must be refined and the
majority of that will go to the Swiss refiners. This is a very important
consideration when gold demand goes up and there won’t be sufficient gold to
satisfy all the new buyers. When the paper gold market collapses and the
paper longs ask for delivery there will be a massive shortage of gold. The
increased demand cannot be satisfied by more production but only by a much
higher price. At that point, only the companies that have a long established
relationship with refiners will get supply of gold.
GOLD AND ESPECIALLY SILVER READY TO TAKE OFF
After a 12 year bull market, gold has been in a shallow correction for 6-7
years. The correction bottomed between 2013 and 2015 depending on in which
currency we measure gold. The uptrend since that bottom has been very slow
and more of a sideways consolidation. But gold in some currencies like
Canadian and Australian dollars are at the 2011 tops and others like the
pound are not far form it. It is only gold in US dollars which hasn’t quite
recovered yet due to a temporarily stronger dollar. That will soon change.
(see charts in my article “Central
Bankers Never Get It Right” )
It would be unwise to believe Trump’s new economic advisor who just
advised investors to buy the dollar and sell gold. Larry Kudlow is a
perma-bull in stocks, the dollar and the US economy and that is why he got
the job. He will most likely not last long in his new position as all markets
go against him such as falling dollar and stocks, higher gold and interest
rates.
So when gold soon takes off, silver is like a coiled spring which
will explode. For 3 1/2 years, silver has traded in a range which
has become increasingly narrower. In the last 15 months the range has got
even narrower as seen in the chart below. The technical indicator MACD in the
chart has also shown very little oscillation for 4 years and even less so
since the beginning of 2017. The upper and lower trend lines also show the
narrowing range.
The gold/silver ratio which is just above the 80 level for the 4th time
since 2003 is another very good indication that silver will lead the surge of
the precious metals. Every time the ratio reaches that level and turns down,
silver moves up twice as fast as gold.
Thus, there are many indications that silver is now ready to move up very
fast. Since there is very little physical silver available, the coming move
should be explosive. So hold on to your seats but buy silver (and gold of
course) first. But remember that precious metals are not bought for short
term gains but for long term wealth protection. This next uptrend in gold and
silver will last a long time and be spectacular.
BULL MARKET IS OVER
Global stock markets are crashing, the dollar is falling and gold
is going up.
None of this is of course a surprise to our readers. I have warned about
it for quite a while and called the top of the stock markets in my article “Central
Bankers Never Get It Right”. In the same article I also forecast the
demise of the dollar and the imminent rise of gold. Well it seems to be all
happening.
With overextended and overvalued markets, any minor event can trigger the
turn. We now have a global trade war, higher interest rates, end of money
printing (for a while) and tapering instead. Any single one of these events
would be enough to turn fragile markets around. So the combination of all of
them is most certainly the start of a long term and devastating downturn in
the world economy and a collapse of all bubble markets. It is when the crisis
hits the credit markets that it will become really ugly. And that is
guaranteed to happen. Insurance in the form of precious metals is now
absolutely critical.
Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management AG
GoldSwitzerland.com
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