China Find $15bn of Fraudulent Gold in System

Bloomberg reports the chief auditor of China’s financial institutions has found $15.2bn worth of loans backed by gold transactions are fraudulent. The finding of such a high amount of fake gold in the system could seriously backfire on the economy and the price of gold bullion.

The National Audit Office found 25 bullion firms involved in the transactions sparking a public security investigation into alleged fraud at Qingdao Port where copper and aluminium stockpiles are used as collateral for loans.

Earlier this year, weaknesses in China’s economy were called into question when several large companies defaulted on payments in copper, iron and other ore metals, It has been a practice in China’s shadow banking system to use metal ores as a hedge against investments rather than precious metals.

Although the Chinese government had previously turned a blind eye to financing deals with commodities, the Central Bank were forced to take action following the default payments by scaling back financing deals and reducing Chinese imports on metals.

Selling gold in Asia

There have been large sell-offs of gold bullion in the Asian market this week which has pulled the prices back. As we suggested on yesterday, this was to cash in on quick short-term gains as traders know US dealers need to buy gold to use as a hedge against riskier investment in a tepid US economy.

With Chinese authorities having to clamp-down on gold imports, the rising price of bullion will come under pressure and could see another slump in prices. This is good news for consumers who only had a small window of opportunity to snap up gold at attractive prices.

At the time of writing spot gold is selling at $1314.80, just $2.10 lower than its value at the close of trading on Thursday. Once the investigation of fraudulent gold in China does get under way in earnest next week, there could be some great deals available for anybody looking to add bullion to their investment portfolio.

However, the World Gold Council based in London has already issued a statement saying it is confident that any fraudulent activity discovered in China will not affect its overall estimate of gold pricing. However, there is likely to be some fall-out with investment linked to trading through Qingdao Port.

Buying gold

There is always a wealth of fraudulent gold in the system every year which is why it is important to be careful where you buy gold. Always use reputable dealers that belong to the London Bullion Market and provide a certificate of authentication with any gold purchases.

The best opportunities to buy valid gold at the best prices are from high-street stores where there is a high concentration of jewellers, or from online dealers like These types of dealers only obtain gold coins and bullion bars directly from national Mints and because of the high concentration of competition offer the best prices on gold products.