However, we're not so enthused about the idea of mixing the two. While both metals share the same density, tungsten costs a fraction of the price. That gives a very strong incentive to try to pass one off as the other and Felix Salmon of Reuters has recently been reporting on claims that some gold bars have been salted' with tungsten rods.
Details remain sketchy and it is almost certain that the problem is limited to a few rogue bars. The myth of billions of doctored bullion in bank vaults remains just that a myth.
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However, this is a reminder that fakes do exist. Only four years ago the Central Bank of Ethiopia had to re-check all its gold after being scammed into buying plated steel.
The good news is that a few steps will eliminate virtually all of the risk from physical gold.
Buy from a reputable dealer
As well as fakes and poor value, buying from a hole-in-the-wall operator also runs the risk that the gold has been stolen. This is a serious problem in some parts of the UK.
At the very least you should ask how long they have been in business and what measures they take to stop bogus coins. Firms that have existed for a long time will have a reputation to protect.
Buy well-known coins
The krugerrand, Britannia and sovereign are good places to start. The first is the most common coin in the world while the Britannia and sovereign are legal tender in the UK, and so are free from capital gains tax.
Some basic fake' tests
The most basic test is to use a magnet. Since gold (like silver) is not magnetic, anything that sticks to a magnet is dodgy. Gold is also an inert metal (ie, it doesn't rust), so a black or greenish hue is a sign that it is metal plated with gold.
Any coins or bars should feel relatively dense. You can try to judge this yourself, or buy a cheap scale and calipers to check the density. There are also specialised scales that are designed specifically for sovereigns and can be bought on eBay for less than £50.
As with any investment, the most important test is the 'smell test' if you think that something doesn't look right, go somewhere else.
Alternatives to physical gold
Clearly, the disadvantage with ETFs is that you don't have the physical gold itself in your hands. However, as a cheap, convenient way to get exposure to the gold price, they are hard to beat.
We like the iShares Physical Gold ETC (LN:SGLN), which simply holds physical bullion. With a total expenses ratio of 0.25%, it is a low-cost way to track the gold price. ETFS Physical Swiss Gold (LN:SGBS) is held in a Swiss bank vault, and the fees are only slightly higher at 0.39%. (You can also get sterling-denominated versions of gold ETFs).
Another option is to bet on the price of gold. This is one of the key betting markets, so spreads are generally low across the board.
However, as with any spread bet, this is a leveraged investment. You could end up losing more that your initial stake so it is not for everyone, and it is most definitely not the same as holding physical gold.
For anyone concerned about a potential repeat of the WorldSpreads situation, just remember to limit the amount of money you hold with any one broker. As my colleague Phil Oakley has pointed out, the Financial Services Compensation Scheme (FSCS) offers up to £50,000 worth of cover in the event that your firm goes out of business (assuming it is Financial Services Authority-authorised).
Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
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