Complete and Utter Zebu

Over the past few weeks, rumours have been growing that the gold which forms a large part of the reserves of many major countries may not be all it seems. The Chinese government, it is said, took delivery of some 400-ounce gold bars last October and decided to do a random test.

To their surprise, the bars were not solid but were made of tungsten, much the same density as gold, and surrounded by an outer coating of bullion. The tale has it that the bars – nigh on 6,000 of them – came from America and had previously been stored in Fort Knox. Some time during the Clinton administration, so it is said, 640,000 tungsten blanks were coated with gold and placed in the depository at Fort Knox.

This story has all the hallmarks (sorry!) of a great conspiracy, particularly as the wilder variants suggest that this is just the tip of a much bigger iceberg. As with all the best conspiracy theories, it is hard to disprove, given that the guardians of Fort Knox and the Bank of England aren’t likely to throw their doors open to visitors. With gold at a 10-year-high of well over $1,000 an ounce, imagine the consequences if there was even the slightest grain of truth (sorry again!). It would make the recent financial crisis resemble a flea bite on an elephant.

But how to find out? We could, of course, have mounted a full-scale raid on Fort Knox as in the James Bond film Goldfinger. But we reckoned some of the people there must have seen the movie, so the element of surprise would probably not be on our side. We could have bought ourselves a few bars and had them tested but as they currently cost over $400,000 a bar, that seemed a little extravagant.

So instead we contacted the London Bullion Market Association. If anybody knows about gold, it is the LBMA. It sets the “Good Delivery” standards, ensuring that all gold traded around the world meets the same criteria and thus removing the need for gold to be tested every time a transaction occurs. They claimed not to have heard the rumours (a little odd, perhaps) but were quick to say that it was utter tosh. With gold only a little below its peak, it is clear that the market as a whole does not give the yarn much credence. If they did, the price of gold would be in free fall.

And, as one City expert pointed out, given the vociferousness of the Chinese government on so many other matters, if it really had discovered that 6,000 gold bars from America were nothing more than shiny tungsten, would they not be making a very, very, very loud noise about it?

So, a great conspiracy theory, but almost certainly nothing more than that. That does not mean, of course, that there are not other scams involving gold, but we’ll return to that another day.