Gold has been counterfeited for as long as there’s been currency.
The first incidence of gold counterfeiting is recorded as being in Lydia, Greece around 600BCE, which is the birthplace of the world’s first coin.
Then there’s the legend of the Greek physicist Archimedes and his water displacement experiments. He famously proved that a goldsmith had counterfeited the gold crown of King Hieron II by submerging the crown in water and determining how much water was displaced. It was suspected that the goldsmith used silver for the crown and kept the gold for himself. Pure gold has a higher density than silver and displaces less water than silver because silver has a higher volume. So when he placed the crown in the water and compared it to submerging a real piece of gold, the crown displaced more water and he determined the King had indeed been cheated.
The Roman government created their own fake gold coins by slowly debasing the silver content of the coins but still assigning the same value to them. Debasement is not exactly counterfeiting to create fake coins but it is a government’s decision to create money that isn’t backed by a finite supply of precious metals. This results in hyperinflation and overtaxation. It is believed by many historians to be a major contributing factor to the fall of the Roman Empire.
Islamic empires were also counterfeiting their own currency during the fall of the Byzantine empire. The gold dinars of the Umayyad Caliphate were most commonly counterfeited.
The same happened in an event known as The Great Debasement. During the reign of Henry VIII in 1544 England, the gold standard was dropped from 23 carat to 20 carat and silver was reduced from 92.5% sterling silver to a mere 25%. Sometimes the gold and silver content was replaced altogether with copper. It was for the same reason any business cuts their pure product with cheaper materials— to earn more profits. In the case of governments, taxpayers end up funding the establishment so they can save money on currency production. King Henry wanted to have more money to spend on luxury and war. All debased currency was removed from circulation by Elizabeth I in 1560 after the debased coins were causing issues with trade.
The belief in the currency by the citizenry is important to maintain the integrity of money. People must have faith that the currency is valued appropriately for what is being exchanged.
This faith is undermined by counterfeiting and debasement, which breeds skepticism and a lack of trust among participants in the economy.
Coins may be debased by treasuries but gold bars are more likely to be counterfeited than coins. Gold bars are typically stashed away in safes, not in frequent everyday use like coins and therefore are less likely to be detected. There are large-scale gold bar counterfeiting operations in the world today, so there are fakes circulated in the international markets. Some fake tungsten blanks in an international banking counterfeit scandal were traced back to an American manufacturer that produced over one million blanks during the Clinton administration. Counterfeit gold bars are usually made by hollowing out a bar and filling it with a base metal that can best mimic the density, size and dimensions of gold. Tungsten is similar in density to gold, about a 0.26% difference, making it the perfect metal to use in place of gold. After a bar is filled with tungsten, it is covered back up in pieces of the real gold to make it appear more believable.
Being subject to coin debasement by your government is something you can’t control.
You can control whether your own precious metal portfolio is authentic and pure.
People are always going to try and replicate that which is intrinsically valuable but in the end, what is truly valuable will be what still stands.
There are ways to determine the purity of gold to avoid being fooled. Gold is here to stay and continues to be a wonderful investment for people who want their wealth to withstand the test of time. Precious materials of substance will override the vicissitude of unpredictable financial markets and politics.