Is The Fed Selling Fake Gold to New York Jewelers?

Fake gold bars filled with tungsten discovered by unsuspecting jewelers in Manhattan’s Midtown Diamond District have many experts warning of fluctuations in the price of gold after buyers become suspicious of the purity of their physical assets.

There were rumors, but the story broke when Ibrahim Fadl, owner of Express Metal Refining, purchased a 10-ounce bar from a well-known Russian salesman who he’d purchased gold from before. The bars were stamped with the Suisse PAMP logo, familiar to any gold investor, complete with serial number and certification papers. But Fadl became suspicious when he offered the salesman a deep discount for the investment-grade gold bar and he quickly accepted it. So he checked, and after drilling into the bar he discovered it was filled with gray tungsten.

Now at least 10 tungsten filled bars have been discovered in the Diamond District, and both the FBI and Secret Service are investigating. With similar counterfeits found in England and Germany, authorities suspect an international ring. But something about this smacks of conspiracy to me… so I have to ask who investigates the investigators?

This was a sophisticated operation. Tungsten is almost the same weight as gold, but costs about a dollar an ounce. Fadl reported that the Swiss markings were perfect, and the forgery even stood up to an X-ray of the bars. Raymond Nassim, CEO of the American arm of the Swiss firm told authorities the culprit must be a professionally trained jeweler saying, “The forger had to slice the original bar along the side, hollow out the gold and insert the tungsten ingot, and then reseal and polish the bar.”

Here’s where it breaks down for me. This is a serious counterfeiting operation. They must have had enough investment capital to purchase many $18,000 bars upfront, and the technical expertise and equipment to pull off the forgery. We’re talking hundreds of thousands of dollars of initial investment. But then this person, who is a professionally trained jeweler himself, takes his counterfeit gold to other jewelers, who he must know are going to melt them down and repurpose them. I mean he takes them to a gold refinery with “Express” in the name. That doesn’t sound like a person who wants to go unnoticed. A wise counterfeiter takes his fake gold and sells it to precious metals investors, of which there is a huge market, who are going to stash the bars away in a safe for decades, maybe generations.

No. This was a person who wanted to make headlines, not a person who wanted to get rich quick. That means that this suspicious Russian gold seller (which is just too obvious of a trope to be real), was selling real gold to Manhattan jewelers for who knows how long just to gain their trust. And then suddenly floods the market with fake gold and disappears, making his lucrative operation instantly obsolete.

Of course, the intended result was achieved. At an industry dinner hosted by Comex, the New York-based metals exchange, the room was abuzz with talk about the bogus gold bars, according to Fadl. Watch for gold transactions in Manhattan to grind to a halt at least until this scandal blows over, and for confidence in the international gold market to take a hit.

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