June 30, 2020

2020: The Year That Brought to Life the Epidemic Movie, the Societal Breakdown Movie...and the Heist Movie

In the last thrilling post we noted that "Gold is gold". Well it turns out that we erred. 

Kingold Jewelry, a corporation that is one of the largest, if not THE largest gold dealers in the world. They also deal in real estate and hospitality but mainly are a precious metals trader. The are based in....Wuhan China. 

"I can already see this is going nowhere good."

Well, they just got a 2.8 billion dollar loan from various creditors in China and the U.S. which they used their gold as collateral for. 

This is hardly noteworthy except for the minor detail that the collateral turned out to actually be gold-plated copper.  

No really. More press coverage here, here, here, and here

83 tons of gold turned out to be fake. It was gilded copper! 

It is unclear if the collateral was fake from the beginning or if this was a heist and the copper(!) was substituted at a later date. However, multiple stashes of the ersatz aurum held by creditors turned out to be spurious specie. Unless ALL the creditors got hit, and their stashes swapped with copper it seems likely that this was the state of the collateral from the beginning.

Which leads to a question.

Lead, which I have some familiarity with, is roughly 50 percent denser than copper. If I have a bunch of copper wire or pipes in one hand (don't ask) and a similarly sized bit of lead in the other, the difference is going to be quite obvious to even an untrained weeb like me. Gold is just under twice as dense as lead. They substituted plated COPPER for gold. How in the HELL did this not get picked up on when the 'collateral' was delivered? 

This fiasco has some implications.

There is the actual possibility that China's gold reserves and financial stability may be at risk. This article suggests 4% of China's gold reserves may be fake. 

That has economic implications for financial stability at a moment that China, having burned bridges internationally by being imperialist commie racists and which is reeling under the economic and social trust effects of the Wuhan Coof of Death That Came out of Wuhan China really does not need any more black swans. Indeed the negative economic potential  and the very profound blow to credibility in the eyes of the public that having a chunk of their gold reserves turn out to be fake could imply might well presage a certain amount of domestic unrest. Chinese dynasties that do not fall to mongol invaders or Limey drug dealers tend to be most vulnerable to preference cascades when they lose "the mandate of heaven" in the eyes of the people. Domestic unrest in a totalitarian nuclear power has the potential for much mischief and unpleasantness. 

There's also the question of why Kingold would do this. I looked up the company and found little about who owns them beyond 68% is in the hands of shareholders and that the CEO is a former PLA general. The company was founded in 2002 and there does seem to have been some concern regards the company in 2018 as I found two stories that were asking questions about the company then.  With this disaster, their whole business model just blew up...no one will trust them in the capacity of gold dealer again. One option is that they were incompetent and got robbed some time ago, and transferred the fake gold in exchange for the loan unwittingly. Given that gold is their core business, this bespeaks a profound and almost unbelievable level of incompetence for no one to notice that THE GOLD WAS COPPER (and not gold plated tungsten, which has almost the same density as gold and which costs 24 dollars a kilo...in the US and not China which is the worlds leading producer of tungsten).  

A more troubling notion is that the company thought that everything is about to blow up and liquidity and the versatility that having lots of money portends for survival is more important than long term business reputation, which is basically irrelevant in post-apocalyptia. 

That's probably not likely, but the year thus far does not support dismissing it out of hand. 

There is another troubling implication that is less potentially consequential but annoying nonetheless.The inevitable "Bitcoin is better" argument is probably not strictly speaking, valid, but it is making the rounds and will make certain individuals insufferable for the foreseeable future. 

Posted by: The Brickmuppet at 03:49 PM | Comments (6) | Add Comment
Post contains 760 words, total size 7 kb.

1 I'm not sure this event is so much a black swan as a gray pigeon.  I think there's a lot of this going on in China all the time.

Posted by: Pixy Misa at Tue Jun 30 18:26:26 2020 (PiXy!)

2 "There's also the question of why Kingold would do this."
One of those links ties gold-backed loans like these to the financing of all those ghost cities.  So we have fake gold being used to get financing for construction of buildings that will never be occupied.  Brilliant.

Posted by: Rick C at Tue Jun 30 20:31:42 2020 (Iwkd4)

3 Two posts about gold in a row. A coincidence, I'm sure.

Posted by: Pete Zaitcev at Tue Jun 30 22:46:41 2020 (LZ7Bg)

4 Another data point in my "This must be the last season of our show, the writers have gotten REALLY lazy" conspiracy theory

Really hoping a nice afterlife awaits all of us once this computer simulation shuts itself down.

Posted by: fillyjonk at Wed Jul 1 20:53:58 2020 (+MBAo)

5 Is there Nothing that China won't fake instead of doing properly?

Posted by: Mauser at Thu Jul 2 00:47:27 2020 (Ix1l6)

6 The reason for using Copper is that that the Copper was associated with the mining or processing of the gold. Copper is usually what is mined and the gold, and silver, along with other precious metals, extracted. Most gold is not from "Gold" mine. When it is, copper is used as anodes for the electrochemical extraction of the gold. So, at a gold mine or gold processing plant, there is a lot of copper around. Lead, or Tungsten, purchased in quantities, would probably raise some eyebrows. The rest is Chinese culture and the man in charge. I would be a rather embarrassing thing for a high official if you did not take his word that the gold was not what he said it was. The general would have lost a significant amount of face if his integrity was questioned. That is until somebody did check. The general must be on his way out.

Posted by: Jccarlton at Tue Jul 7 17:18:47 2020 (ziQnx)

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