Strong demand for gold, coupled with a movement of the metal to New York, has led to a dramatic bullion production problem at the state-owned Korea Minting and Security Printing Corporation (KOMSCO). 

KOMSCO mints gold coins and bullion, as well as other "security items" such as banknotes, ID cards and passports. Among its many products, the government "company" supplies bullion to commercial banks, retail outlets and online shopping malls in Korea.

Due to a shortage of raw gold available at nearby refineries, the Mint was forced to suspend the sale of gold bullion last month, and the suspension continues.

The problem appears to be a combination of strong retail demand for physical gold in South Korea and a disruption in the gold market due to the westward movement of gold, coupled with poor planning on the part of KOMSCO.

Earlier this year, gold and silver futures prices traded on the COMEX rose above the spot price of gold in London and other markets. Traditional analysts attribute the dynamic to the threat of tariffs pushing the price of gold (and silver) futures higher in New York, but as Chris Powell reported, there may be a more fundamental problem at play: the fact that there is far more paper gold than physical metal . 

Regardless of the reason, the gold movement has led to record outflows of gold from London vaults and has also pressured availability in Asia. According to a Reuters article last month , " global bullion banks are shipping gold to the United States from trading centers that cater 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 an increase in retail demand for gold products in South Korea. 

Last year, Korea's largest convenience store chain, CU, partnered with Korea Minting and Security Printing Corporation (KOMSCO) to offer customers gold bars the size of a fingernail. The bars come in a range of sizes from 0.1 grams to 1.87 grams. The largest bars sell for 225,000 won, the equivalent of about $165. The gold is packaged in cards featuring various graphics and messages.

Similar products are sold in vending machines.

According to a report by CNBC , Seoul's machines have sold out of small bullion. An analyst at State Street Global Advisors told CNBC that this reflects the growing demand for gold. 

"The sudden increase in gold demand in South Korea has prompted Korean banks to temporarily suspend bullion sales at the request of KOMSCO, as there is not enough bullion in the country to meet local demand."

Analysts say several factors, including domestic political turmoil, along with geopolitical and economic uncertainty caused by the threat of a trade war, are driving safe-haven demand. 

South Korean President Yoon Suk Yeol is immersed in an impeachment trial after declaring martial law last December. 

According to the World Gold Council, investment in South Korean bullion and gold coins rose 29 percent in the fourth quarter of 2024. Meanwhile, the South Korean won fell 11 percent against the U.S. dollar. 

Natixis analyst Bernard Dahdah told CNBC that increased demand for gold makes sense given the current climate. 

"If you're worried about the devaluation of your currency, you switch to gold. If you don't have confidence in your stock market, you switch to gold."

Bad decisions by government planners

It also appears that KOMSCO made some bad decisions, exacerbating its current shortage. 

As noted, the past three months have seen an increase in gold moving to New York. Traders have been making deliveries to the COMEX in one-kilogram bars, the preferred form of commercial gold in Asia and the Middle East. World Gold Council analyst John Reade has speculated that, in their eagerness to take advantage of arbitrage opportunities in New York, traders have been looking around the world for gold bars. 

"Korean refiners and wholesalers probably got a phone call that said, 'We'll buy all your stock at a very high price, put it on a plane and ship it to New York.'"

Stefan Gleason, chief executive officer of Money Metals Exchange, said refiners probably took advantage of the offer to make a quick buck and mints such as KOMSCO were left speechless.

"The refiners did what made sense to them at the time, and their customers were unprepared and stuck. Now it will take time and higher premiums in the wholesale market to attract more gold to Asia."

"The premium you could get by delivering large bullion to the COMEX was as high as over $50 per ounce at one point. If you are in the business of minting and selling small bullion, you will get a much higher premium for those items, so you had better make sure you have enough gold raw material, even if you have to pay more for it. Poor planning on the part of mints invariably damages relationships with their retail and dealer customers."

The problems seen at the Korean-owned Mint are similar to those seen at other government mints from time to time. Gleason pointed to the sad saga of the recent American Silver Eagle shortages and sky-high premiums caused by mismanagement at the U.S. Mint, as explained in his 2022 article, " The World's Most Overvalued Silver Coin ".

"Government Mint bureaucrats are either unable or unwilling (or both) to find creative ways to increase production. Always keeping stocks current, they have steadfastly refused to accumulate surplus of these pieces during periods of lower demand. God forbid the U.S. Mint should have surplus silver on its shelves!"

Gleason noted that private mints have historically been more reliable suppliers and offer more reasonable and stable prices, which is one of the reasons Money Metals encourages customers to focus on round coins and bars, rather than government minted coins.

Mike Maharrey, Money Metals