South Korea is experiencing a significant shortage of gold bars as the state’s mint struggles to meet increasing demand for this precious metal. The Korea Minting and Security Printing Corporation (KOMSCO), which oversees the production of gold bars among other security products, has halted gold bar sales for over three weeks. This suspension is attributed to difficulties in sourcing raw materials necessary for production.
Impact of Supply Issues
KOMSCO, which supplies bullion bars to banks and retailers, acknowledged the current limitations in supply on their website. Reports indicate that vending machines in Seoul have run out of tiny gold bars, as consumers rush to secure this safe-haven asset amid rising uncertainties. Robin Tsui, an APAC gold strategist at State Street Global Advisors, explained that Korean banks have temporarily stopped selling gold bars at KOMSCO’s request due to insufficient stock to meet the local demand.
Market Drivers
The surge in demand is largely fueled by retail investors seeking gold as a hedge against domestic political instability and broader economic uncertainties. Following U.S. President Donald Trump’s tariffs, many South Koreans are opting to convert their cash into gold.
South Korean President Yoon Suk Yeol currently faces political challenges, including an impending impeachment verdict related to controversial actions taken while he was in office. This turbulence has coincided with Trump’s return to the presidency and the likelihood of escalating trade tensions, which further enhances gold’s allure as a protective investment.
Gold as a Hedge
The rapid depreciation of the Korean won has also prompted more investors to flock to gold. Ray Jia from the World Gold Council noted that as the currency’s value shrinks, the appeal of gold as a stable asset increases. Investment in gold bars and coins surged by 29% in the last quarter of the previous year, coinciding with a depreciation of the won against the U.S. dollar.
While the Kospi index has shown a slight increase, many individual investors have shifted their focus away from the stock market, leading to significant capital outflows. Since December 3, approximately 224.88 billion won ($155.9 million) has exited the stock market, contrasting sharply with a 10% rise in gold prices during the same time.
Regional Gold Shortages
The heightened demand for gold in South Korea reflects broader supply constraints reported in other regions, particularly the U.S., where traders are stockpiling gold in anticipation of further trade fallout. Nicky Shiels of MKS Pamp highlighted that the influx of gold into the U.S. market is creating regional shortages, particularly in places like London and South Korea.
John Reade of the World Gold Council explained that local refineries are responding to the U.S. demand, which has led to a diversion of gold stocks from the South Korean market. In addition, changes in production trends are steering refineries towards larger kilobars, which are more suited for transportation to U.S. markets.
As the situation evolves, the challenges faced by South Korea’s mint underscore the growing complexities in the global gold market, shaped by shifting demands and geopolitical uncertainties.
