(Mike Maharrey, Money Metals News Service) Strong demand for gold coupled with a movement of metal to New York has caused a dramatic gold bar production problem at the state-owned Korea Minting and Security Printing Corporation (KOMSCO).
KOMSCO mints gold coins and bars, along with other “security items” including banknotes, IDs, and passports. Among its many products, the government “enterprise” supplies bullion bars to Korean commercial banks, retail outlets, and online malls.
Due to the shortage of raw gold available at nearby refineries, the mint was forced to suspend the sale of gold bars last month — and the suspension is ongoing.
The problem appears to be a combination of strong retail demand for physical gold in South Korea and disruption in the gold market due to gold moving West, coupled with poor planning by KOMSCO.
Earlier this year, the prices of gold and silver futures traded on the COMEX surged above the spot price of gold in London and other markets. Mainstream analysts blame the dynamic on the threat of tariffs pushing the futures price of gold (and silver) higher in New York, but as Chris Powell reported, there could be a more fundamental issue at play: the fact that there is a lot more paper gold than physical metal.
Regardless of the reason, the movement of gold has driven record outflows of gold from London vaults, and it pressured availability in Asia as well. According to a Reuters article last month, “Global bullion banks are flying gold into the United States from trading hubs catering to Asian consumers, including Dubai and Hong Kong, to capitalize on the unusually high premium that U.S. gold futures are enjoying over spot prices.”
At the same time, there has been a surge of retail demand for gold products in South Korea.
Last year, Korea’s largest convenience store chain, CU, has teamed up with Korea Minting and Security Printing Corporation (KOMSCO) to offer customers fingernail-sized gold bars. The bars come in a range of sizes between 0.1 grams and 1.87 grams. The largest bars sell for 225,000 won, the equivalent of about $165. The gold is packaged in cards that feature various graphics and messages.
Similar products are sold in vending machines.
According to a CNBC report, machines in Seoul have sold out of the small bars. A State Street Global Advisors analyst told CNBC this reflects the surging demand for gold.
“The sudden spike in gold demand in South Korea has led to Korean banks to temporarily suspend gold bar sales at the request of KOMSCO as there are not enough gold bars in the country to fulfill local demand.”
Analysts say several factors, including domestic political turmoil, along with geopolitical and economic uncertainty sparked by the threat of a trade war are driving safe haven demand.
South Korean President Yoon Suk Yeol is embroiled in an impeachment trial after declaring martial law last December.
According to the World Gold Council, South Korean gold bar and coin investment jumped by 29 percent in Q4 2024. Meanwhile, the South Korean won dropped by 11 percent against the U.S. dollar.
Natixis analyst Bernard Dahdah told CNBC the surge in gold demand makes sense given the current climate.
“If you’re concerned about your currency devaluing, you switch to gold. If you’re not confident about your stock market, you would switch to gold.”
Bad Decisions by Government Planners
It also appears that KOMSCO made some poor decisions, exacerbating its current shortage.
As noted, there was a surge of gold moving to New York over the past three months. Traders made deliveries to the COMEX in kilogram bars, the preferred form of commercial gold in Asia and the Middle East. World Gold Council analyst John Reade speculated that as they sought to take advantage of the arbitrage opportunities in New York, traders scrounged around the globe to obtain bars.
“Korean refineries and wholesalers probably got a phone call and said: ‘We will buy your entire stock off you at a good premium, stick it on a plane and send it to New York.’”
Money Metals Exchange CEO Stefan Gleason said that the refineries probably jumped on the offer to make a quick buck, and mints like KOMSCO were left flat-footed.
“The refineries did what made sense for them at the time, and their minting customers were unprepared and got stuck. Now it will take both time and higher wholesale market premiums to draw more gold back to Asia.”
“The premium that could be captured by delivering large gold bars to the COMEX rose to over $50 an ounce at one point. If you’re in the business of minting and selling little wafer bars, you’re going to get a much higher premium on those items — so you better make sure you have plenty of gold feedstock, even if you have to pay up for it. Poor planning by mints invariably sours relationships with their retail and dealer customers.”
The problems apparent at the Korea-owned mint are similar to problems seen at other government mints from time to time. Gleason pointed to the sad saga of recent American Silver Eagle shortages and sky-high premiums caused by gross mismanagement at the U.S. Mint, as explained in his 2022 article, “The Most Over-Rated Silver Coin in the World.”
“Government mint bureaucrats are either incapable or unwilling (or both) to find any creative ways of increasing production. Always operating hand-to-mouth on blanks, they’ve pointedly refused to build up surpluses of the blanks during periods of slower demand. God forbid the U.S. Mint has extra silver sitting on the shelf!”
Gleason noted that privately owned mints have historically been more reliable suppliers and provide more reasonable and stable pricing, which is one reason why Money Metals encourages customers to focus on rounds and bars, rather than government-minted coins.
Mike Maharrey is a journalist and market analyst for MoneyMetals.com with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
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