If you are a precious metals investor, the recent news of fake gold bars showing up in Manhattan should be of interest. News of the existence of tungsten-filled "gold" bars is certainly not new. They have been found in other parts of the world as well. But when people are successfully selling fake gold bars to reputable and knowledgeable gold dealers in the United States, it is time for U.S. based investors to be especially careful with their purchases.
Here are a few things to keep in mind when purchasing physical precious metals:
First, stay small. There is less economic incentive to fake a gold coin as opposed to a gold bar. It doesn't mean there aren't fake gold coins floating around (there are). But if you stick with a reputable dealer, and you know what a real coin looks like, you are less likely to get scammed than you might be when purchasing a gold bar. Moreover, if you are nervous about buying a fake gold coin, you can always choose to purchase coins that dealers have purchased directly from the U.S. or Canadian Mints.
The American Precious Metals Exchange (APMEX) has a program called MintDirect, which allows investors to purchase unopened tubes of gold and silver coins that came in "Monster Boxes" direct from the U.S. and Canadian Mints. In terms of gold, the 1 ounce American Eagles come in tubes of 20 coins, and the 1 ounce Canadian Maple Leafs come in tubes of 10 coins. Regarding silver, the 1 ounce American Eagles come in tubes of 20 coins, and the 1 ounce Canadian Maple Leafs come in tubes of 25 coins.
Additionally, if you are worried about fake silver coins, you could consider purchasing some of the older 90%, 40%, or 35% silver coins that used to be in circulation. These include silver dollars, half-dollars, quarters, dimes, and nickels. There would far less economic incentive to fake these coins. Although, again, it does not mean that fakes don't exist.
Furthermore, regarding silver bars: if you want to purchase physical bars and think you can avoid fakes by turning to silver, be aware that silver bars stuffed with lead are known to exist.
In terms of finding a dealer with whom to do business, the U.S. Mint has a "Coin Dealer Database" on its website that allows you to search for dealers by state. But be aware that the Mint includes the following disclaimer regarding the database: "The companies that appear on this list are neither affiliated with, nor are they official dealers of the United States Mint."
Also, if your exposure to physical precious metals comes through exchange-traded funds such as GLD, SLV, IAU, or PPLT, you should at least think through the potential for those funds to be backed by fake gold, silver, or platinum. One question to consider is what would happen if an audit of these funds' holdings actually did turn up fake precious metals. What do you think the chances are that investors would actually find out?
Finally, if the possibility of purchasing fake precious metals is a worry with which you do not want to concern yourself, you could always purchase the miners as a means of gaining exposure to precious metals. One of the more popular ways of diversifying exposure to the miners is through the Market Vectors Gold Miners ETF (NYSEARCA:GDX).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am long gold, silver, and platinum.