Costco’s Golden Venture: Bullion Sales Boom

Costco’s foray into gold sales has proven to be a lucrative endeavor, transforming the precious metal into a cash cow for the retail giant since its launch last year.

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Analysts at Wells Fargo now project that monthly revenue from gold sales at Costco could be anywhere between $100 million to $200 million, marking a significant surge since the introduction of bullion to the warehouse club in late summer 2023.

Edward Kelly, an equity analyst at Wells Fargo, attributes this rapid growth to Costco’s competitive pricing and strong customer trust, noting the increasing frequency of Reddit posts, swift online sell-outs, and robust monthly e-commerce sales.

If Kelly’s estimations hold true, it would signify a remarkable achievement for a product that debuted just last August, generating approximately $100 million in sales during Costco’s fiscal first quarter, which concluded in late November 2023.

Costco offers 1-ounce bars of nearly pure 24-karat gold, with pricing estimated to be around 2% above the spot price. With gold prices soaring over 13% in 2024 amid concerns over inflation and the U.S. fiscal landscape, the demand for gold bars has been robust.

Despite the positive impact on Costco’s top-line revenue, the profitability of gold sales remains a bit subdued. The store’s low profit margins on gold bars, coupled with additional cash back incentives for executive members and Citigroup credit card users, contribute minimally to the bottom line.

Nevertheless, gold bars present a compelling investment opportunity amidst global uncertainties, serving as a hedge against inflation and geopolitical instability, particularly in regions like the Middle East and Eastern Europe.

Central banks, especially in Asia, continue to be significant buyers of gold, further bolstering its value as a hedge against adverse geopolitical outcomes. This reaffirms gold’s status as a prudent addition to diversified investment portfolios.

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