The sales of gold at Costco have proven to be highly profitable for the big-box retailer, with analysts at Wells Fargo estimating monthly revenue to be between $100 million to $200 million. The rapid acceleration in sales since gold was introduced at Costco in the summer of 2023 has been attributed to aggressive pricing and high customer trust. This has led to increased frequency of Reddit posts, quick sell-outs of products online, and robust monthly e-commerce sales, indicating a sharp uptick in momentum.
Costco is offering 1-ounce gold bars made of nearly pure 24-karat gold, selling at around 2% above the spot price, which was approximately $2,357 an ounce as of Tuesday morning. This suggests the price at Costco is slightly above $2,400. The surge in gold prices this year, driven by inflation and investor fear over the U.S. fiscal situation, has made selling gold bars an attractive option for the retailer. Despite limitations on sales per customer and low profit margins, adding gold sales has had a positive impact on Costco’s top line.
However, the low premium Costco receives for gold bars, combined with additional cash back benefits for executive members and Citigroup credit card users, means that gold sales are not contributing significantly to bottom-line profit. While it may not be a highly profitable business for Costco, selling gold bars aligns well with the current investment climate. Gold is considered a natural hedge against inflation and geopolitical unrest, making it an attractive option for diversified portfolios.
Foreign governments, particularly in Asia, have been large buyers of gold amidst geopolitical uncertainties. The increase in prices this year suggests that while purchases have been lower in the early part of 2024, they are expected to rise later on. This reinforces the idea of gold as a reasonable hedge for diversified portfolios and highlights its value as an investment option in uncertain times.
While the exact impact of gold sales on Costco’s overall business and profitability is unclear, the high level of interest and sales momentum indicates a positive response from customers. The success of gold sales at Costco underscores the importance of offering diverse product options to meet consumer demand and capitalize on current market trends. As gold continues to be a valuable asset for investors seeking to hedge against inflation and geopolitical risk, Costco’s decision to sell gold bars aligns well with prevailing market conditions.
