A Lesson from History - Counterfeit Gold

"It may be safely stated that the art, as pursued in the United States, is without parallel, and that without vaunt or hyperbole, we can 'beat the world' on this our national 'specialtie'- counterfeiting." (An anonymous writer in 1863).

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Gideon B. Smith patented a counterfeit gold coin detector in 1853, the first in a long line of fake detectors patented over the next 30 years. They were borne out of a need for a surer, more positive method of identifying fake gold coins. The methods that had been used since the early 15th century were no longer suited to the rapidly developing commerce and business of the 1850's.

The detection of fakes was a serious business as the buying power of even a minor coin was great. The businessman of the time depended on a variety of checks, plus personal observation, to determine if the offered coin was genuine. These checks included spitting on the coin, or scraping it and then rubbing it against the short hairs on his head to make the base metal in a counterfeit show through. The coin was also dropped on a hard surface-a counterfeit having a different 'ring' to a genuine coin. Considering these methods, it is not surprising that the fake detector soon became as common in business as the electric calculator is today. The Gold Prohibition Act of 1934 calling for the confiscation of all gold coins, except those considered 'rare', marked the disappearance of the fake coin detector.

- Allender Gold Coin Scale

The money in everyday use changed from coins of intrinsic value such as gold, silver, and copper to paper, coins of the cheaper metals and plastic cards. The low buying power of everyday metal money eliminated the danger of counterfeiting and the lesson of history has been forgotten by many.

The metal money counterfeiter has not gone away and neither has his target changed: It is still the coins of high intrinsic value and buying power. These are the gold bullion coins owned by an estimated 5 million Americans. The risks to investors are great: He or she mostly knows little about gold coins (how often have you handled a gold coin?), and the quality of the fakes has improved tremendously. Counterfeiters, using modern technology, are able to produce fakes visually identical to genuine coins. Newspapers report of dealers, jewelers, and bankers all being fooled by good quality fakes.

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How can an investor guard against buying fakes? By doing what the merchants of 100 years ago did-checking the authenticity of every gold coin bought. How do you check a coin? By using the same method that Gideon B. Smith's detector employed-weighing and measuring the coin against the issuing mint's specifications. Modern counterfeiters may have mastered the appearance of their fakes but the principle of density-the ratio of mass to volume-has not changed. Gold has a greater density than the common metals such as lead, brass, copper, and steel. This means that it is impossible to make a common metal fake (the only kind ever found) that is identical to a genuine coin in both weight and size.

No honest dealer wants to sell you a fake. But he can make a mistake. Don't be part of someone else's mistake-check every coin you buy. After all, who can look after you better than yourself?

First published in “The Financial Security Digest”, August/September 1983. P.O. Box 1928. Cocoa. FL 32922


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