A few days ago, the discovery of a single 10 oz Tungsten-filled gold bar in Manhattan’s jewelry district promptly went viral, as it meant that a tungsten-based, gold-counterfeiting operation, previously isolated solely to the UK and Europe, had crossed the Atlantic.

The revenue from the main tungsten industry totaled RMB5.8 billion during Jan-Oct this year, rising 26.1% YOY, according to statistics, 10% higher than the average growth over the county. The tax amounted to RMB140Mt, an increase of 87.8% y-o-y and 62% higher than the average growth throughout the county. The tungsten industry gains great momentum.

The county emphasizes on the cooperation with Jiangxi University of Technology, National Tungsten Inspection Centre and Technique Innovation Centre in the county to enlarge tungsten industry, raise the added value of products and extend the industry chain. The county gives great support on capital, water and electricity supply, policy, talents and listing on the market with Shirui New Mateiral Company , Jiangxi Tungsten Alloy Company and other leading enterprises with potential as centre to strengthen leading companies. In the meantime, the county speeds up technology innovation, express the role of finance to support enterprises to expand production and create, transform technique results and from rough processing to deep processing.

Over the weekend there’s been some rather breathless speculation about how a gold bar has been found, one that has been drilled out and filled with tungsten. Given that I’m actually in the metals trade, albeit not bullion or tungsten (I have handled both but they’re not my specialty) I thought I’d have a closer look.

And there’s two parts to the first mainstream report.

Firstly, I wouldn’t be surprised if someone has attempted to do the substitution. It’s been known for a long time that the densities of tungsten and gold are close enough that in theory, drilling out a hallmarked gold bar and replacing the interior with tungsten could fool all but the most sophisticated of tests.

You can see the purported photos of the bar that has been found here. Following the story around the claim is made by ABC Bullion that a Swiss refiner (and producer of good delivery bars to the London gold market) MKS had sent out the warning email last week. Which, at least as of lunchtime today was something of a surprise to MKS as when I spoke to them they had no idea about it all. There were quite a lot of people like me asking about it but they had no idea whether the story was true, whether someone in their company had sent it, no real idea of what was going on at all. They were quite mystified in fact.

But as I’ve said, in theory this sort of thing is possible even if it would be very difficult to do in practice. Further, I’m not really sure that the economics of it quite work out either. Sure, tungsten is vastly cheaper than gold but this would be very skilled work with a low success rate and the gross profits are a few thousand $ per 1 kg bar so treated. It’s most certainly not a 5 minute job either. Nor merchandisable. Just not sure that it would be worth it.

Where the story goes off into fantasy though is here (and Felix is correct in the questions he asks to try and work out prevalence):

If there are 1.3 million salted 400 oz bars in existence, and each one is 75% tungsten, then that makes 390 million ounces of gold which in truth isn’t there. At $1,660 per ounce, that’s over $600 billion which people think they own but don’t. To put that number in context, it’s roughly half the total quantity of subprime mortgages which had been issued at the height of the housing bubble.

The answer to this comes from a commenter there:

The amount of turnover in the market is much higher than you think. In the case of the professional market which deals in 400oz bars, yes many of these sit in central bank vaults but many others are held by private investors and these are traded. There has been no occurrence in my 18 years in the industry, and I haven’t heard of others, of fake 400oz gold bars. Any bar coming out of a LBMA accredited refinery can be trusted because the refinery cannot control or know where the bar will end up and during its life there is a good chance a bar will eventually be melted for use by a jeweller or other refiner and as such there is a high probability of being caught out.

In the retail market I’d guess that turnover is a lot higher, particularly as retail investors do tend to exhibit herding behaviour, which means when there is selling it usually overwhelms retail buyers at that point in time. The end result is that in a net selling situation dealers do not sit on gold due to the high holding costs vs low profit margins and uncertainty as to when buying demand will return, so they liquidate that net selling excess back to refiners, where it is melted. Thus there is a fair bit of turnover and again, a good chance of fakes being detected.

I would take that even further. Even the ingots in central banks, or in gold vaults, sometimes get sent off to be refined. For the very same reason those vaults are regularly vacuumed for the trace amounts of gold that have rubbed/been chipped off the ingots. It’s absolutely true that gold doesn’t oxidise or decompose, but as bars are moved around then they inevitably get bumped and after enough of that they are likely to get sent of for refining so as to maintain their good delivery characteristics. And no, a tungsten filled bar would not be refined without someone noticing.

If I were to assign percentages here I’d say that someone trying to drill out a bar and fill it with tungsten would be up near 100%. I’m sure the idea has occurred to lots of people independently. As to this being a common occurrence among good delivery bars I’d put it down somewhere near zero. There’s just too much turnover of bars through the refineries for this to be possible.

The mainstream scrap tungsten prices maintain steady. The transaction price excluding tax of bit concentrates on ￥187.00-￥191.00/kg, domestic blade is ￥172.00-￥176.00/kg, imported blade is ￥182-186/kg; scrap pure tungsten block is ￥208.00-￥213.00/kg.

The price of the content of scrap tungsten grinding material which is more than 70W is ￥1330.00/mtu, 50W-70W is ￥1270.00/mtu, 30W-40W is ￥1110.00/mtu. The prices above are steady. 10W-20W tungsten unit to ￥635.00/mtu while 8W-10W tungsten to ￥571.00/mtu.

High-level of tungsten concentrate prices have been pared back slightly, but ‘high-price with low-demand’ situation still exists. Under this circumstance, prices of other tungsten products are hard to increase. At the end of year, scrap tungsten resource is short as well as demand, so traders are inactive to deal. Chinatungsten Online predict that scrap tungsten prices will keep steady constantly.

In the international market, the lowest price of oversea tungsten market shows trend to move up. By the night of 12th, the guiding price of MB ferrotungsten in warehouse Rotterdam maintains $42.30-43.50 per kilogram tungsten, which has increased $0.25; the quotation of ammonium paratungstate keeps $304.00-330.00/mtu.