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Gold refining. How to avoid scammers, fraudsters, smugglers and bandits

On Friday the 21st, I visited the only gold refinery in Europe located in a free trade zone. VC-A has got a buy-side agreement with them to channel sellers of raw gold.

If you have some sort of expose to the gold-trading market, you already know that 99% of leads fail to materialise. 98% are scams or frauds whereas the remaining 1% fail because of misaligned procedures, disagreements on price, unexpected changes of the LBMA fixing or inflated egos.

By having a refinery located in a free trade zone, it is not part of any country and therefore, there is no tax or excise.

And the other good news is that you can easily frame bandits by asking them to refine the gold “in transit”.

All other refineries in Europe must acquire the gold “for consumption”, which implies a change of ownership between the seller and the refinery or the end-buyer, prior to the refining process. Therefore the risk lays on the seller, who often asks for proofs of funds and banks guarantees, which protects himself but complicates the transaction.

In the case of gold “in transit”, the gold is in the custody of the refinery in the free trade zone during the refining process but remains the property of the seller. The risk is therefore on the refinery because the seller could withdraw the  gold once refined and decide not to sell. In that case, the refinery would have to cover the cost of refining and get no benefits. Given the liquidity of the gold market, gold refined with a 999.99% purity will always find a buyer, so there is no risk to the seller to be stuck with an illiquid asset.

And the very good news is that smugglers will freak out at the idea of bringing gold to the a free trade zone because they would have to go through customs and disclose their identity.

So, if you are a real owner of doré bars or gold bullions, favour refineries located in free trade zones to refine them.

And if you are a buyer and want to vet a seller, ask him to bring his gold to a free trade zone. If he gets nervous and at the same time swears that he is honest but declines the offer, good chances are that he is a fraudster.

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