South Korea’s mint is grappling with a gold bar shortage as supply constraints bite

South Korea’s state-run mint is grappling with a gold bar shortage amid robust demand for the precious metal.

The Korea Minting and Security Printing Corporation (KOMSCO), which is responsible for the production and distribution of various security products, suspended sales of gold bars last month.

KOMSCO attributed the suspension to issues with procuring supply of raw materials, according to a Google translation of the notice on its website. The mint typically supplies bullion bars to Korea’s commercial banks, stores and online shopping malls.

Vending machines in the capital of Seoul reportedly sold out of fingernail-sized gold bars, according to local media outlets, as consumers scrambled to purchase the safe-haven asset.

“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 fulfil local demand,” said Robin Tsui, APAC gold strategist at State Street Global Advisors.

Demand is largely being driven by retail investors, industry watchers told CNBC, with many piling into the asset as a hedge against domestic political turmoil and concerns of economic and geopolitical uncertainty sparked by U.S. President Donald Trump’s tariffs.

South Korean President Yoon Suk Yeol is currently awaiting an impeachment verdict after his short-lived declaration of martial law on Dec. 3.

Lawmakers also voted to impeach acting president Han Duck-soo late last year, plunging the country into renewed political turbulence. South Korea’s second acting president after Han, Choi Sang-mok, has faced some opposition from the public over what they see as actions to hinder efforts to apprehend Yoon.

South Korea’s domestic turmoil has corresponded with Trump’s return to the White House and, along with it, the prospect of an escalating trade war.

Gold’s proven hedge against local currency depreciation has led to higher demand amid a “rapid depreciation” of the Korean won, especially in the last quarter of 2024, said Ray Jia, a research head at the World Gold Council.

Bar and coin investment in South Korea surged 29% in the fourth quarter of last year to 5.9 tons, according to data provided from World Gold Council, which coincided with an 11% depreciation of the Korean won against the U.S. dollar during the time, LSEG data showed.

Meantime, market watchers told CNBC that South Korea’s equity market hadn’t been too exciting for local investors.

“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,” said Bernard Dahdah, precious metals analyst at Natixis.

While South Korea’s benchmark Kospi has registered a 2% climb since Dec. 3, the index saw an exodus of 224.88 billion won ($155.9 million) among individual investors between Dec. 3 to March 5, according to data from the stock exchange. This contrasts to a 10% gain in spot gold prices over the same period.

“Gold’s superior returns over domestic equities has driven more demand for gold,” State Street Global Advisors’ Tsui said.

While acknowledging the higher demand for gold in recent months, some say that it is also very much a broader supply issue.

Strong U.S. demand for gold in recent months has been redirecting bullion out of several countries as traders try to stockpile it in preparation for Trump’s tariffs on Canada and Mexico. 

“There are regional shortages of gold, led by London but now also South Korea, because metal is going to the U.S. and thus there’s less supply in those markets,” said MKS Pamp’s head of strategy Nicky Shiels.

A complicating factor is that traders hoping to move gold into the U.S. Comex depositories largely make deliveries via kilogram bars, which are usually available only in select regions in Asia and Middle East. 

“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,'” said World Gold Council’s market strategist for Asia and Europe, John Reade. 

Additionally, a higher incentive to produce the larger kilobars typically accepted by Comex warehouses may be prompting refineries to switch to producing these bigger bars for shipment instead, Tsui said.