Costco Gold Rush: Shoppers See $400 Gains as Retailer Sells $200M in Bars Monthly

Costco Gold Rush: Shoppers See $400 Gains as Retailer Sells $200M in Bars Monthly.

Costco currently generates revenue ranging from $100 million to $200 million from gold sales.

However, the cash back incentive of 2 percent offered to certain members may affect overall profitability.

In September, the price of 1-ounce gold bars was approximately $1,950, whereas it has risen to $2,370 at present.

Costco is currently estimated to be selling gold bars valued at up to $200 million each month. However, have American purchasers realized a profit from these investments?

Research indicates that individuals who acquired gold bars last year or earlier this year, prior to the surge in gold prices, have indeed made a profit. Conversely, those who purchased more recently will need to await further developments.

The wholesale retailer began offering 1-ounce gold bars last summer, and company executives noted that they were selling rapidly.

Since then, Costco has capitalized on this trend by expanding its inventory to include a wider variety of bullion and coins. According to Wells Fargo, the retailer is now selling between $100 million and $200 million worth of gold monthly.

This surge in sales coincides with gold prices reaching record highs, driven by ongoing inflationary pressures on the US economy. So far this year, gold spot prices have increased by over 13 percent.

In September, Costco began offering 1-ounce 24-karat gold bars at a price of approximately $1,949.99. As of this week, the price has risen to $2,369.99, although the bars were sold out by Wednesday.

This indicates a price increase of $420 since September. Furthermore, compared to January's price of $2,069.99, the current price reflects an increase of $300.

Consequently, individuals who purchased these bars last year or earlier this year could realize returns amounting to several hundred dollars if they chose to sell them now.

While it is not possible for owners to sell the bars back to Costco at the current retail price, they could expect to receive approximately 95 to 98 percent of the current market value by selling them to a precious metals dealer, either online or at a shopping mall.

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Wells Fargo equity analyst Edward Kelly noted in a communication to clients on Tuesday that there has been considerable interest in these products, attributed to Costco's competitive pricing and the high level of trust customers have in the brand.

He observed an increase in activity, citing the rising number of Reddit discussions, rapid online sell-outs, and Costco's strong monthly e-commerce sales as indicators of heightened momentum since the product's launch.

Kelly's forecasts for sales are notably more optimistic than those expressed by company executives during a December earnings call.

At that time, Costco's then-CFO Richard Galanti reported that the company had sold approximately $100 million worth of gold bars in the fiscal quarter concluding in late November 2023.

Since then, Costco has significantly expanded its range of gold products, now offering not only the two types of gold bars available last year but also gold coins, including the 'American Eagle Gold Coin' and the 'American Buffalo Gold Coin.'

The retailer has raised the sales limit to five units per customer, an increase from the previous limit of two.

However, according to Kelly, this rise in sales does not necessarily translate into substantial profits for Costco.

This situation arises because the company is providing executive members with a 2 percent cash back incentive, in addition to another 2 percent for customers utilizing their Citigroup credit cards, as noted by Kelly.

He indicated in his report that the pricing structure and shipping expenses imply that the business operates on very slim profit margins at best.

For Americans interested in investing in gold today, there are two distinct avenues available.

They may choose to purchase physical gold, such as Costco's gold bars, or opt for an exchange-traded fund (ETF), which functions similarly to a stock that mirrors the value of gold.

This week, Costco's website listed the 1-ounce gold bars at $2,369.99, which is slightly above the current spot price of $2,347, as reported by APMEX.

This pricing reflects the retailer's need to secure a modest profit, in addition to covering the costs associated with manufacturing and shipping the bars.

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Gold remains a resilient and profitable investment, offering stability during economic uncertainty. Costco’s rapid sales of gold bars—generating up to $200 million monthly—highlight growing consumer confidence in gold as a hedge against inflation.

Early buyers have seen gains of $400 or more per ounce as prices surged over 13% this year. Unlike other assets, gold's intrinsic value holds steady, making it a reliable choice for preserving wealth. Whether through physical bullion or ETFs, investing in gold provides an opportunity to safeguard assets while benefiting from market growth. As inflation persists, gold continues to shine as a sound financial strategy.