Since Costco first introduced gold bars last year, the sales momentum of this product has surged dramatically, with the price of the gold bars it sells now slightly above $2,400 per ounce.
For Costco, gold has turned into a cash cow. The large retailer began selling gold last year.
Costco's gold bar business is booming. According to Wells Fargo analysts' expectations, its revenue "could now reach" between $100 million and $200 million per month. This rapid growth has accelerated since the membership-based warehouse club began selling gold bars at the end of summer 2023.
Wells Fargo equity analyst Edward Kelly said in a report to clients on Tuesday: "Our research indicates that there is a strong interest in Costco's gold sales, given its aggressive pricing and high customer trust. The increasing frequency of Reddit posts, the rapid sell-out of products online, and Costco's strong monthly e-commerce sales suggest that the sales momentum of gold bars has surged dramatically since their launch."
The company is selling one-ounce gold bars made from 24k pure gold. Although the official website does not disclose the price to non-members, it is estimated that the product is usually sold at a price about 2% higher than the spot price. Based on the spot gold price of about $2,357 per ounce, this means that the price of the gold bars sold by Costco is slightly above $2,400 per ounce.
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This product began to be introduced last August and generated about $100 million in sales in Costco's first fiscal quarter ending in late November 2023.
For a store that prides itself on its diverse consumer choices, selling gold bars is an easy business.
Costco's gold bar sales limit is now five bars per customer (previously two), which obviously helps to increase Costco's revenue, but the impact on profits is different, as it offers a low premium for the gold bars sold in the store, a 2% rebate for premium members, and an additional 2% rebate for those using Citigroup credit cards.
Kelly said that gold bar sales have increased the company's general merchandise sales by about 3%, but their contribution to profits is not significant. He wrote: "Pricing and transportation costs indicate that, at best, this is a very low-profit business."
Gold prices have soared this year, with spot gold up more than 13% so far, driven mainly by ongoing inflation that began in 2022 and investor concerns about the deteriorating fiscal condition of the United States. The U.S. government's deficit is expected to reach $2 trillion this year, with total liabilities exceeding $34.6 trillion.Gold is considered a natural hedge against inflation, but there are other factors driving up gold prices, including geopolitical turmoil in the Middle East and Eastern Europe, which brings uncertainty to financial stability.
DataTrek Research has stated that central banks have been major buyers of gold, especially in Asia. The rise in gold prices this year indicates that although there was a decline in central bank purchases at the beginning of 2024, there may be a rebound later on.
Nicholas Colas, co-founder of DataTrek, said in a recent market report: "This move indicates that many foreign governments believe it is necessary to hedge geopolitical risks, as this may have a negative impact on other risky assets such as stocks. The only good news is that it reinforces the concept of gold as a reasonable hedge tool for a diversified investment portfolio."