China faces surge in fake gold scams amid bullion rush

In recent months, China has witnessed a rise in fake gold (假黄金) scams, defrauding thousands of consumers. These frauds often involve the sale of inferior or artificial gold marketed online as “999 gold,” the purest form containing 99.9% of the yellow metal. This uptick in fraudulent activity has coincided with a broader rally in gold prices, prompting many Chinese citizens to invest in bullion as a perceived safe haven asset amid economic uncertainty. As millions of Chinese consumers shift their savings into gold, seeing it as a more stable investment than real estate, the gold bullion and jewelry market has expanded. This has only gained pace as China’s central bank has purchased vast amounts of gold for its reserves over the past two years. Up and away According to the World Gold Council, gold jewelry purchases in China climbed 10% YoY last year to 603 tons. Meanwhile, total gold consumption in China increased by 8.78% YoY to nearly 1,090 metric tons, according to the China Gold Association. During the Spring Festival this year, the sale of gold products spiked by 24% YoY, according to the Ministry of Commerce, and gold jewelry sales on both Tmall and JD.com more than doubled during the holiday season. This increased demand has created a fertile ground for fraudsters, particularly on major online platforms like Taobao and Pinduoduo, which have yet to address the rising complaints publicly despite a chorus of consumer complaints. On one complaint platform alone, there were over 5,000 entries related to fake gold. Victims of these scams often discover the fraud through basic examinations such as the flame test, which reveals fake gold by discoloration, or professional appraisals. In response, the Chinese government has issued guidelines for verifying gold authenticity, recommending methods like the nitric acid test – where a green reaction indicates fake gold – and assessing the physical properties of the gold. China’s issue with fake gold is far from new. High-profile cases include the Kingold Jewelry scandal in 2020, when over a dozen financial institutions discovered that 83 tons of gold bars used as collateral were gilded copper, resulting in 20.2 billion RMB ($2.8 billion) in loans backed by fake gold. Another example is a scandal in Shaanxi and Hunan provinces in 2016 involving 19 billion RMB ($2.6 billion) of adulterated gold. Vulnerable customers Today, older consumers – who are increasingly active on social and livestreaming platforms – are particularly susceptible to falling for online scams. Fraudulent hosts, pretending to be legitimate jewelry merchants, often employ deceitful tactics such as concocting sob stories about failed businesses or urgent family health crises to elicit sympathy and deceive viewers into purchasing counterfeit luxury jewelry. Other sellers announce clearance sales only to vanish after receiving payment, leaving buyers with no recourse. Industry experts note that livestreaming has significantly altered the shopping behavior and psychology of older consumers, who often lack the experience and knowledge to effectively navigate the online jewelry market. As gold prices fluctuate – trading at $2,344 per ounce as of May 30 – consumers need to be increasingly vigilant. Chinese authorities have been proactive in addressing these scams. For example, recent cases in Hubei province saw local prosecutors handling fraud cases involving gold-plated jewelry passed off as pure gold, resulting in financial losses for pawn shops. In another instance, a criminal was caught using a special cleaning solution to steal gold from unsuspecting consumers. Law enforcement agencies have also made efforts to crack down on these frauds. In one recent case in Shanghai, a woman was deceived into purchasing gold products worth 27,000 RMB ($3,798) on the promise of favorable investment returns, only to discover the scam when her account was frozen. The police are investigating such cases, and arrests are being made to prevent further fraud. The rise of scams has led to increased consumer awareness campaigns. In Shanghai, for example, community initiatives have been launched to protect vulnerable groups, particularly older residents, from fraud. These initiatives aim to increase awareness and vigilance against scams by employing local volunteers and conducting educational sessions. Consumer protection websites like Heimao Tousu are also raising awareness about the prevalence of fake gold scams. The World Gold Council urges consumers to prioritize security over seemingly low prices, highlighting the persistent challenges in ensuring genuine purchases.

China faces surge in fake gold scams amid bullion rush

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Published June 04, 2024

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China faces surge in fake gold scams amid bullion rush