Gold Market Rocked by Chinese Counterfeit Scam

Author: Corey McDowell - Economics Editor

Published: 6 Jul 2020

Last Updated: 6 Jul 2020

Synopsis

A massive scandal has emerged in the People’s Republic of China, concerning the issue of fake gold bars as collateral against loans totalling approximately $2.8 billion. According to the Peking-based Caixin media company, the loans were provided to Wuhan Kingold Jewellery Inc., a company headed by Jia Zhilhong. Mr Jia was previously a top-ranking officer in the People’s Liberation Army who oversaw the operations of gold mines within China.

Fake Gold Bars

Gold-Plated Copper Bars

Wuhan had been hitting the headlines for a different reason - as the alleged source of the coronavirus outbreak - but now finds itself as the place of origin of the biggest gold scandal in recent times. The NASDAQ-listed Kingold Jewellery firm are based in the city, and had issued 83 metric tons of ‘gold’ to at least 14 different Chinese lenders as collateral to obtain loans.

When one of those companies, Dongguan Trust Co. Ltd., set out to liquidate their share of the gold bars as a result of a default from Kingold Jewellery, they found out that the ‘gold bars’ were actually gilded copper alloy and practically worthless. This sent shockwaves throughout Kingold's creditors, who all in turn tested their collateral of gold bars to find that they were fake too.

In response to these allegations, Mr Jia flatly denied that anything was wrong with the collateral put up by Kingold, saying:

“How could it be fake if insurance companies agreed to cover it?”

He refused to comment further on the matter. A subsidiary of the main Chinese state insurer, PICC Property and Casualty, is currently investigating.

Buyer Beware...

This is just another case of individuals and companies being caught out with fake Chinese gold. A similar episode happened in 2016, when regulators in Shansi provinces melted down gold bars, only to find they were debased with tungsten. A financial source in Wuhan had remarked about Mr Jia and Kingold Jewellery:

“We knew for years that he doesn't have much gold - all he has is copper”

Unsurprisingly, the source declined to be named, possibly fearing reprisal. It goes to show that the old Latin saying, caveat emptor, is still sound advice. One could say Kingold’s creditors really should have tested the gold given to them, especially given previous scandals with fake gold in the People’s Republic of China.

Fake Gold Coins

Fake 1927 Gold Sovereign George V

We have written articles on the fake gold sovereign coins that we have come across. Quintuple sovereigns appear to have been the most popular target for counterfeiters, but all sovereigns in general have been targeted by counterfeiters. Rather unusually, we have come across a fake 1958 sovereign too, which is quite rare for sovereigns issued during Queen Elizabeth II’s reign.

Further Reading

You may be interested in reading though our precious metal and coin news section.

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