Globally, there’s a problem in the bullion supply chain: fraudulent bars are becoming more and more prevalent. Many consumers are struggling to identify real versus fraudulent gold.
Investigations recently found up to 83 tonnes of counterfeit gold used as collateral for 20 billion yuan ($4.1 billion dollars’) worth of loans by a major Chinese jewellery company.
This is not the first example of regulators finding large amounts of counterfeit gold in the market.
In 2016, regulators found that 19 Chinese banks had been accepting low purity gold in exchange for loans. Some had black Tungsten plate in the centre.
In the last three years, at least $50 million worth of fraudulent gold bars have been found by all four of Switzerland’s leading gold refiners and in the vaults of JPMorgan Chase and Co.
Where does the problem come from?
At the core of the problem is the fact that the gold market lacks traceability past the production stage. Once the gold bar is out in the market, it becomes largely untraceable. Companies lose upstream quality assurance once the gold bar is in the market.
This is largely because there is no regulated method of tracking bullion through the supply chain. Many companies do not have the capabilities to do so without help.
Another major part of the issue is that the fraudulent bars are not only low purity bullion bars. Instead, many are real and high purity gold and only the markings have been faked. The markings are faked to subvert measures that are implemented to stop conflict mineral sourcing and prevent money-laundering, especially in conflict areas.
A long term solution to fraudulent gold
There has not yet been a solution that can track bullion throughout its lifecycle. Companies must ensure that it is sourced correctly and verified by the original producer.
Companies need to track bullion through the market, instead of purely through upstream vendors.
Using blockchain, AI, IoT and machine learning could allow us to track bullion through its entire lifecycle. This would involve creating a traceable record of the bullion on the blockchain. This ensures identifiability across the entire value chain.
Implementing innovation in our supply chains allows us to track assets without losing track once they travel out into the market. Companies can better track bullion by creating a digital tracking system so that it’s difficult to lose track of the gold within the supply chain.