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All that glitters is … tungsten?

By Sheyna Steiner ·
Friday, September 21, 2012
Posted: 6 am ET

Gold is pricey. With seemingly no limit to the heights the price of gold will reach, people are trying to cash in. Not just by investing in it -- by scamming gold buyers with tungsten-salted gold bars.

Business Insider reported on Wednesday that a gold merchant in New York City drilled into a newly purchased gold bar to check the quality and found that it had been hollowed out and replaced with tungsten, a cheaper metal with a very similar density to gold.

This isn't the first report of fake gold bars, but apparently it is the first one to be verified. Stories circulated earlier this year and in 2010 alluding to similar scams in which numbered gold bars were filled with tungsten, but, "Both the 2010 and March cases were subsequently debunked by the Perth Mint in Australia," according to the Business Insider story, "How a Manhattan jeweler wound up with gold bars filled with tungsten."

With the state of the world economy -- it's not super -- investors have flocked to gold and other tangible assets. On Thursday, gold futures contracts were trading at about $1,770 per troy ounce according to CNN. With a now-substantiated report of fake gold bars on the market, will investors think twice before investing in gold?

I'm going to guess probably not. Though buying physical gold is only one way to invest in it, retail investors can protect themselves from fraud by using a specialist vault that takes responsibility for quality, says Adrian Ash, head of research at BullionVault, an online gold and silver market for private investors.

"What's known as the chain of integrity leads from the latest buyer back to their seller, and so on, all the way to the refiner. They're then ultimately responsible for making good the buyer's loss," he says.

"It's this warranty, that delivery is good, which makes the professional wholesale market cost-efficient and liquid. Hence the name of these protocols and refining standards, Good Delivery. Accredited custodians only take in bars from other accredited vaults, and metal only enters the system from accredited refiners," Ash says.

If someone were to buy a Good Delivery bar and  take it home, the value would drop. Buyers want to see the accredited storage history to avoid any shenanigans.

A bar of gold is no small investment, a 400-ounce bar is worth about $710,000, though of course the value fluctuates with the market price.

These days gold investors aren't required to have such deep pockets, "several companies today enable you to buy small chunks of metal, held inside those bars, outright as your own property," says Ash.

There are several ways to invest in precious metals -- only one of which involves heavily armored trucks delivering shiny bricks to your house, or more appropriately, to an accredited vault.

According to the Bankrate feature, "Pros and cons of investing in gold," investors can get into gold by buying gold bars, though the cost of storing and insuring them should be considered. Investors can buy gold without hiring armed guards through futures or gold-mining stocks, or they can buy exchange-traded funds that own gold.

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