HK gold market hit by sophisticated scam

By Robert Cookson
Financial Times, London
Thursday, December 2, 2010

(excerpt)

HONG KONG -- Hong Kong goldsmiths have been sold hundreds of ounces of fake gold this year in one of the most sophisticated scams to hit the Chinese territory's gold market in decades.

Industry executives say the scam -- while not massive and hitting only the retail sector -- uncloaks the increasingly elaborate gold swindles perpetrated by criminals in Asia as bullion prices soar to record highs of $1,400 a troy ounce.

The counterfeits have shocked Hong Kong's gold community not because of the amount involved but because of their sophistication.

"It's a very good fake," said Haywood Cheung, president of the Chinese Gold & Silver Exchange Society, Hong Kong's century-old gold exchange, highlighting how criminals are developing new techniques to commit an age-old fraud.

Mr Cheung said he was aware of at least 200 ounces -- worth $280,000 -- of the fake gold that had been discovered by jewellers and pawn shops. But he estimated that 10 times that amount might have infiltrated the retail market. In comparison, the large gold bars held by central banks weigh 400 ounces and are worth nearly $560,000 each.

In one case, executives discovered a pure gold coating that masked a complex alloy with similar properties to gold. The fake gold included a significant amount of bullion -- about 51 per cent of the total -- alloyed with seven other metals: osmium, iridium, ruthenium, copper, nickel, iron, and rhodium.

http://www.ft.com/cms/s/0/f7b05cf2-fcfc-11df-ae2d-00144feab49a.html#axzz16yMkWFUM