South Korea Mint Pauses Gold Bar Sales as Supply Squeeze Intensifies

South Korea's mint has temporarily suspended the sale of gold bars as the rapid movement of physical gold and silver to the U.S. continues to send ripples through the precious metals markets.

As Bloomberg put it, this adds to signs of "widespread tightness across markets for physical precious metals."

In its announcement, the Korea Minting and Security Printing Corp. said it faced supply sourcing problems and was struggling to manage demand for gold bars. 

The prices of gold and silver futures traded on the COMEX have surged above the spot price of gold in the London market. 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 appears to be impacting supply in Asia as well. According to a Reuters article earlier this 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."

Even though the price of gold surged in recent weeks and set new price records above $2,900 per ounce, the premium on the COMEX has created an arbitrage opportunity that big institutions capable of quickly moving metal between trading hubs can take advantage of. 

JPMorgan was among several financial institutions that recently announced plans to deliver bullion contracts traded on the COMEX. The delivery announcements totaled 30 million ounces of gold, the second-largest level of planned deliveries since 1994. 

The movement of gold and silver out of London vaults is becoming problematic.

This issue here is obvious. As metal flows out of London into New York, at some point, the gold and silver holdings across the pond will become depleted. As we reported a couple of weeks ago, this dynamic is creating significant uncertainty in both the gold and silver markets.

“This dynamic is having the effect of draining London vaults of gold and silver at an unusually fast rate –and at some point, these lower levels of vaulted metal in London could create price dislocations in that major market too. Those who have short positions in the New York market are in the process of getting squeezed, especially if they are having trouble getting their hands on physical metal to deliver into their short positions. Or get it into the right form.”

This squeeze is likely one of the factors that pushed the spot price of gold to record levels last week.

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