Gold: Why Do Government Mints Seem to Run into Production Problems? We Tell You…

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 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 at the mint.

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 of the Gold Anti-Trust Action Committee 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, 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 these small bars. A State Street Global Advisors analyst told CNBC this reflects the surging demand for gold, pointing out that the sudden spike in gold demand in South Korea 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.

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 scrounge around the globe to obtain bars, noting that “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.’”

Refineries probably jumped on the offer to make a quick buck, and mints like KOMSCO were left flat-footed.

The premium that could be captured by delivering large gold bars to the COMEX rose to over $50 an ounce at one point. So those in the business of minting and selling little wafer bars are going to get a much higher premium on those items – making it critical for a mint to have plenty of gold feedstock, even if it costs more than usual. Poor planning by mints – and also dealers – can certainly sour relationships with customers.

The problems apparent at the Korea-owned mint are similar to problems seen at other government mints from time to time. We've constantly written about the sad 2020-2023 saga of American Silver Eagle shortages and sky-high premiums caused by embarrassing mismanagement by government bureaucrats at America's own U.S. Mint.

Privately owned mints have historically been much more reliable suppliers and provide more reasonable and stable pricing. This is a key reason why Money Metals constantly encourages customers to focus on rounds and bars, rather than government-minted coins. After all, silver is silver, and gold is gold!

As for this week’s market action, gold is back in the green after pulling back last week, which ended an 8-week winning streak. The yellow metal currently checks in at $2,922 an ounce, up 1.8% for the week.

Turning to silver, which is having a nice week of its own here… the white metal is up just over $1 or 3.3% since last Friday’s close to check in at $32.40 an ounce. We’ll hear some real good discussion on silver coming up here in this week’s interview, so stick around for that. Our guest is quite bullish on where things are headed and has some very bold price forecasts for the metal.

Finally, on the PGMs, platinum is up 1.7% to trade at $976. And palladium is 2.0% and trades just a tick higher than its cousin platinum. The industrial metal checks in at $977 with just a few hours left here in trading for the week.

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