By Patrick A. Heller November 17, 2009

On Monday, Nov. 16, for the first time since the spring of 2008, so many customers were trying to visit our stores that for a good part of the day the end of the customer line extended outside.

Because of the surge in activity 20 months ago, my company had opened a second location in our shopping center just to serve our growing number of customers. In addition, our staff has grown by almost 70 percent since the spring of 2008. Yet we were so busy on Nov. 16 that customers had to wait to be served.

A large number of customers were looking to sell gold jewelry, coins and bullion to take advantage of rising prices. The price of silver jumped over five percent to finally pass the $18 barrier. Simultaneously, gold rose more than $20 from the previous Friday’s close to reach another all-time high level (ignoring inflation, of course).

It seemed like almost as many customers came in eager to buy – focusing on gold bullion. In weeks past, a lot of potential new customers have come in to our store to ask a lot of questions before buying bullion-priced gold coins and ingots. On Monday, their general attitude was different.

They asked what do we have, how much is it, will you take cash, and can I carry it out with me? By early afternoon, our stores were almost bare of larger bullion-priced gold coins and ingots available for immediate delivery.

In addition to a surge in store traffic, our telephones were just about ringing off the hook most of the day. One day does not establish a trend, but it looks like the gradual rise in volume over the past several weeks might have now turned into a solid gold rush.

If you are looking to acquire precious metals for immediate or short-delay delivery, I recommend you do so promptly. If the current trend continues, a few days delay might mean that you have difficulty getting any kind of timely delivery.

Last week, Rob Kirby of Kirby Analytics in Toronto wrote an essay to follow up on last month’s disclosure that apparently some of the 400-ounce gold bars delivered to the Chinese government this year turned out to instead be gold-plated tungsten.

According to Kirby, an analyst who has broken significant news stories in the past, Chinese officials investigated and believe the counterfeit gold bars are the work of a well-financed criminal organization. Many arrests have been made.

Upon further investigation (and remember that this is all “alleged” as no Chinese official is willing to confirm this on the record) the Chinese learned that about 15 years ago a refinery in the United States manufactured between 1.3 and 1.5 million 400-ounce tungsten blanks. Tungsten has an almost identical specific gravity as gold, so a 400-ounce tungsten bar would be the same size as a 400-ounce gold bar. Subsequently, 640,000 of these bars were gold plated and shipped to Fort Knox where they are still located. Kirby claims that he knows people who possess copies of the shipping documents of these deliveries showing the dates of delivery and the exact weights of each of these bars.

The remaining bars were later gold-plated, then apparently sold into the international market. Where they are today is not known, but there are strong suspicions that significant quantities of them are already in bonded warehouses of the London Bullion Market Association (LBMA) and elsewhere as supposedly good delivery gold bars. The alleged counterfeit bars received by the Chinese apparently came directly from the Hong Kong vaults of the LBMA.

To the extent that there are any quantities of these counterfeit bars on the market to fulfill paper gold contracts, there is a significant risk that owners of “paper gold” could be in for major losses in the near future.

This higher risk of loss for forms of paper gold is just one more reason to consider owning physical gold in the form of smaller gold coins and ingots.



Patrick A. Heller owns Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” the company’s monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Financial Sense University (www.financialsense.com). His periodic radio interviews on WILS-1320 AM can be heard at http://www.amlansing.com, on the Korelin Economic Report at http://www.kereport.com, and on Coin Chat Radio at www.coinchatradio.com.

More Resources:

• Standard Catalog of United States Obsolete Bank Notes 4-CD Set, 1782-1866

• Fascinating Facts, Mysteries & Myths About U.S. Coins

• 2010 Standard Catalog of World Coins 2001-Date, 4th Edition

• State Quarters Deluxe Collector's Folder