How widespread are fakes?

All this power fits right in your pocket

Sure, fake gold is readily available, highly realistic, and easier than ever to purchase. And yes, news stories pop up all the time about the latest stash of gold-plated tungsten to be discovered on the market. So it really begs the question, does anybody out there know precisely how widespread this epidemic of fraud really is?

Nobody knows. That’s the tl;dr version, of course. Which is to say that there’s no government agency/corporate consortium/academic lab tracking any tangible data. But what if we want to dig a little deeper? Is there any way to try to quantify, say, the odds that any random you buy will turn out to be a forgery? 

Let’s start by thinking about the economics of crime. Namely, the cost and the benefit. Because it stands to reason that the greater the benefit of committing a crime, and the lower the cost, the stronger the incentive will be.

Now the benefit, in our case, is fairly straightforward to calculate. On a per-coin basis, one is buying a convincing gold-plated tungsten slug for $500 and selling it for roughly $2400, for a net profit of $1900. Naturally, this does not capture the full benefit of the crime, because there’s simply no limit to how many coins can be sold (unless you’re selling so many fakes it actually affects the price of gold - which I’ll save for a later post). So in theory, at least, the benefit is infinite.

The cost on the other hand is a little bit more difficult to quantify. We’ll start with the length of time spent behind bars. Now, prison sentences can vary quite a bit for counterfeiting, but as a first-order approximation, we’ll use a recent case in Georgia as a guideline and say 15 years. 

The cost per year is, as you can imagine, highly subjective. The state of Texas, for example, offers compensation of $80,000 for every year of false imprisonment. In Massachusetts, on the other hand, it’s $1,000,000 per year. For the sake of argument, we’ll say this is a Boston based crime, which brings the total cost of the crime to $15,000,000 (the total after 15 years).

At first blush, this seems to be a pretty steep price to pay, especially if we’re only making $1900 for selling one fake coin. But there’s one tiny factor we haven’t yet included in our cost calculation: The odds of getting caught.

You see, the fakes have gotten so good that they’re almost never identified in the wild. And even when they are, the seller is almost never reported to the police, much less convicted of counterfeiting gold. Because the simple fact is that most people selling fake gold don’t even know it’s fake themselves. The gold has likely traded several hands by the time it is identified, and the person selling it at that point is actually a victim, not a criminal, because they’re the one who ends up losing their investment. 

So the reality is that the odds of getting caught are virtually zero. And when you try to square that with the infinite upside of selling fakes, you’ll start to grasp the scale of the problem we have on our hands…