Costco has seen a surge in gold sales since introducing the product in August of 2023, with analysts estimating revenue to be as high as $100 million to $200 million per month. Sales have been driven by aggressive pricing and high customer trust, leading to quick online sellouts and a significant increase in momentum. The 1-ounce gold bars sold by Costco are priced at around 2% above the spot price, which was approximately $2,357 per ounce as of Tuesday morning. Despite strong sales, the low profit margins on gold bars, coupled with cash back rewards for members, are not contributing significantly to Costco’s bottom line.
The surge in gold sales can be attributed to a variety of factors, including gold’s status as a natural inflation hedge and geopolitical unrest in regions like the Middle East and Eastern Europe. Central banks, especially those in Asia, have been large buyers of gold, further driving up prices. While purchases of gold may have slowed in the early part of 2024, it is expected that they will pick up later in the year as governments seek to hedge against negative geopolitical outcomes that could impact other risk assets such as stocks. This reinforces the idea of gold as a reasonable hedge for diversified portfolios.
Despite the benefits of selling gold for revenue and customer engagement, Costco’s gold business is not highly profitable due to the low premium the store receives for gold bars and the additional cash back rewards offered to members. While the sales have added approximately 3% to general merchandise sales, they are not contributing significantly to overall profit. However, as an investment option, gold continues to make sense in uncertain times, with its value as an inflation hedge and geopolitical uncertainty driving demand.
Costco’s gold sales are limited to five bars per customer, up from two previously, in order to manage demand and inventory. The store’s variety of consumer choices and reputation for high-quality products have made it easy to market and sell gold bars to its customers. The accelerating frequency of Reddit posts and online sellouts indicate a strong level of interest in Costco’s gold offerings. However, the profitability of the gold business remains a concern, as the pricing and shipping costs suggest it may be a low profit venture at best.
Overall, Costco’s venture into selling gold has proven to be successful in terms of revenue generation and customer engagement, with sales exceeding expectations since the product’s launch. The potential for increased geopolitical unrest and inflation in the coming months may further drive up demand for gold, reinforcing its status as a reliable hedge for investors. While Costco’s gold business may not be highly profitable, it has added value to the company’s offerings and enhanced its reputation as a one-stop shop for a wide range of consumer goods.
