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Commodity Investing

The Experts Weigh In on How to Detect Counterfeit Gold Coins

It’s an exciting time for gold investors. It’s also a perilous time.

As I wrote here, China is flooding the markets with counterfeit gold coins. But you can protect yourself.

Common sense is one weapon. If you see a deal that seems too good to be true, it probably is.

Of course, when possible, it’s always worth consulting the experts.

I recently had a chat with Mark O’Byrne, research director at GoldCore.com. That’s a website that sells and buys gold coins, serving an international clientele. GoldCore buys the majority of its coins from government mints, which cuts out a lot of the risk. But what about the rest?

“When buying from clients or the secondary market, we seek proof of purchase or origins of the coins,” Mr. O’Byrne told me. “We have technology to check coins and make sure they are authentic – both in our offices and with our vault providers internationally.”

He explained the technology that GoldCore uses. “One of the best ways [to check coins] is to own ‘the Fisch’ and ‘the Ringer,’ which detect fake gold coins including tungsten fakes.

“The Fisch checks four key things – the diameter, thickness, weight and shape of a gold coin. By checking these four, retail bullion coin buyers can detect all common metal counterfeits.

“The Ringer helps detect fakes through sound. Both gold and silver have a very recognizable ‘solid’ sound when dropped on wood or other surfaces. Fake coins frequently have a more hollow thud or dull sound akin to the sound when you drop today’s base metal coins (euro, dollar, sterling, etc.) and sometimes synthetic coins.”

As for the company’s customers, he said, “We offer a buyback policy for all coins that we sell to clients who store with us in Zurich, London, Hong Kong, Singapore, Delaware and Dubai.

“Also, by owning coins inside the ‘chain of integrity’ with long-standing, established bullion storage providers – GoldCore works with Loomis and Brinks – you are protecting yourself from the risk of fake coins.”

Science and Experience

Each company has its own methods. Another U.S.-based seller, Gainesville Coins, uses different technology. And it makes the same full guarantee of authenticity that Goldcore does.

Everett Millman, a numismatic expert who works for Gainesville Coins, sent me his thoughts. I find it a great insider look at how reputable coin dealers protect themselves and clients. I’ve included his entire message below.

We certify that all of our precious metal products are genuine. The credibility hit we would take for selling even one counterfeit product would be devastating; moreover, we wouldn’t last in this business for very long if we carelessly accepted fake bullion and had to eat the cost!

The surest way to avoid counterfeits is to be knowledgeable about how the coins themselves are supposed to look. This is obviously one advantage that experienced dealers have in avoiding such scams, but even average consumers should read the collector’s guide books and study pictures of the coins they’re interested in.

Although there are some sophisticated fakes out there, there will generally be something inconsistent about the appearance of a counterfeit coin compared to a real one. For example, fake gold coins tend to be slightly off-color. The lettering of the inscriptions may be the wrong font, and the fine details of the design are often cruder by comparison.

Checking the dimensions – diameter and thickness – against the known dimensions of the genuine coin is a dead giveaway. These measurements are published in every guide book of coins; government mints are very careful to adhere to these dimensions because it’s the easiest way to protect against counterfeit currency.

Another important feature to look for are “tool marks.” Counterfeiters frequently leave behind characteristic abrasions when they try to hide an imperfection or try to alter a mintmark to make a common coin appear to be a rare issue. (This is often done with Morgan Dollars to pass them off as rare “CC” mintmark coins from the defunct Carson City Mint.) Beware of suspicious or conspicuous marks near the key design features of a rare coin.

Beyond these “eye tests,” there are at least three more scientific tests that can be conducted to verify if a coin is at least made of the metal it is purported to be:

  1. A simple jeweler’s scratch test with special acids can tell you if a fake gold coin is merely brass or gold-plated. But this really only checks the surface of the coin and entails damaging the coin’s surface.
  2. Using a specific gravity test – which involves some simple calculations of a metal’s weight in the open air and when suspended in water – yields a fairly precise result. Every metal and alloy has its own specific gravity (hence the name).
  3. At Gainesville Coins, we mostly use a new device called a Precious Metals Verifier (PMV) made by Sigma Metalytics to check for counterfeits. This handy device uses the known resistivity (also called specific electrical resistance) of precious metals of varying purities to test if a coin is of genuine metallic composition.

With all that said, it’s worth repeating that your best bet for avoiding counterfeit coins is to buy from a trusted dealer. We’ve been seeing fake coins come from China for some time. (As an aside, a few Chinese companies are even under investigation for defrauding the U.S. Mint’s Mutilated Coin Redemption program by submitting fake mutilated coins for their value as scrap metal!)

The most likely explanation for the rise of fake coins coming from China is simply the growing incentive. As the market for gold coins and other rare coins continues to rise, the financial rewards for passing off such forgeries go up, too.

There will always be someone out there attempting to commit fraud when you’re dealing with collectibles and precious metals, but the incentive to do so is higher the hotter the coin market gets.

I hope you found this expert insight as useful as I did.

If you like to buy gold coins, then forewarned is forearmed. In a market riddled with counterfeits, we need to be extra wary and take expert advice.

You can learn more about Gainesville Coins here and GoldCore here.

In addition, you may want to check out my new report, “The Savvy Investor’s Guide to Gold.” Available now in the Investment U Bookstore, it contains three of my favorite gold investments… as well as the ones I think you should avoid. Click here for details.

Good investing,

Sean

*The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position of Wall Street analysts.


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