Costco selling as much as $200 million in gold bars monthly, Wells Fargo estimates

Gold has turned into money for Costco, where yellow metal sales begun last year have turned into a cash cow for the big-box retailer.

In fact, sales are so brisk that analysts at Wells Fargo expect revenue “may now be running at” $100 million to $200 million a month, a rapid acceleration since bullion hit the warehouse club late in the summer of 2023.

“Our work suggests there has been significant interest given COST’s aggressive pricing and high level of customer trust,” Edward Kelly, an equity analyst at the bank, said in a note to clients Tuesday. “The accelerating frequency of Reddit posts, quick on-line sell-outs of product, and COST’s robust monthly eComm sales suggests a sharp uptick in momentum since the launch.”

If Kelly’s assessment is correct, that would represent quite a move for a product that only debuted last August and generated about $100 million in sales in Costco’s fiscal first quarter that ended in late November 2023.

Costco is selling 1-ounce bars made of nearly pure 24-karat gold. While the price is not disclosed online to nonmembers, it’s estimated that the product generally sells for about 2% above the spot price, which as of Tuesday morning was around $2,357 an ounce. That would put the price at Costco just more than $2,400.

Gold has been on a tear this year, with spot prices rising more than 13% in 2024, pushed higher by a persistent bout of inflation that started in 2022 and investor fear over the state of the deteriorating U.S. fiscal situation. The government is on pace for a $2 trillion deficit this year, adding to a total debt load that has surpassed $34.6 trillion.

So, selling gold bars has been easy for a store priding itself on its variety of consumer choices.

There are a few catches: Sales are limited to five per customer (up from two previously) and while the benefits to Costco’s top line are clear, it’s a little different story for bottom-line profit. That’s because in addition to the low premium the store gets for gold bars, it further offers 2% cash back for executive members and another 2% for those who use their Citigroup credit cards. The sales are adding about 3% to general merchandise sales but not contributing much to profit, Kelly said.

“Pricing at that level and shipping costs suggests it’s a very low profit business at best,” the analyst wrote.

As an investment, though, it makes a lot of sense in these times. While gold is seen as a natural inflation hedge, there are other factors at play, including geopolitical unrest in the Middle East and Eastern Europe that has created uncertainty about financial stability.

Central banks have been large buyers of gold, especially in Asia, and the run-up in prices this year suggests that while purchases are down in the early part of 2024, they are likely to pick up later, according to DataTrek Research.

“The move suggests that many foreign governments feel the need to hedge geopolitical outcomes that might be negative catalysts for other risk assets like stocks,” DataTrek co-founder Nicholas Colas said in a recent market note. “The only good news is that this reinforces the idea of gold as a reasonable hedge for diversified portfolios.”

Costco officials did not immediate return a request for comment.