The Costco shopping experience is now a global phenomenon, with consumers now able to enjoy discounts on the wholesale chain’s bulk purchases and $1.50 hot dogs in the US and places like Taiwan , Japan and Australia.
The company continues to shake up that experience as well. Not only does it produce many of its own products under the Kirkland Signature brand, but it recently began selling gold bars. And as the price of the precious metal reached a new all-time high again this month, the new product offering was well received by members.
Costco’s foray into precious metals has generated mind-blowing results. The company is alleged to have recorded six-figure sales every month since it decided to start selling gold, showing that members have started buying gold bars along with rotisserie chickens and loose toilet paper. But is this the best way to invest in the yellow metal?
Costco shoppers focus on gold purchases during record highs
During the summer of 2023, Costco began selling one-ounce gold bars at its wholesale locations. Within eight months, experts suggest the stores have attracted considerable interest from this new venture.
In a note to clients, Wells Fargo analysts said they expect revenue from gold sales to fall between $100 million and $200 million a month. Swiss-made gold bars have been repeatedly sold out since they were first offered. However, that doesn’t mean the venture is profitable for Costco. The store receives a low premium on gold purchases and offers cash back to some buyers who use credit cards, meaning gold sales don’t contribute any significant boost to profits.
As far as investors are concerned, this is a good time to own gold. The price of the precious metal reached an all-time high of $2,390 per ounce on April 12. In fact, so far in 2024, gold has outperformed the S&P 500 Index.
The main drivers of gold’s current bull run are two-fold. First, the surge in gold prices can be partially attributed to the Federal Reserve’s interest rate policy. Gold has historically had an inverse relationship with interest rates, and with the Fed expected to cut rates this year, investors are starting to look at other assets as APYs are already falling on instruments like high-yield savings accounts. yield.
The second factor driving gold prices is a combination of weak consumer confidence and persistent inflation. With inflation coming in stronger than expected in March, purchasing power continues to be eroded, prompting investors to seek safe-haven assets, of which gold is the favorite as a liquid store of value.
Is buying gold from Costco a good idea?
Consumers can now hop in their car and drive to the nearest Costco location to purchase gold. But is it a good idea? It is a convenient option for those interested in investing in gold for the long term. But if investors choose to purchase the precious metal at the discount warehouse, there are pros and cons they should be aware of. Some incentives offered by Costco might up the ante, but you’d miss the peace of mind offered by buying gold in a brokerage account and holding it in a wallet.
First, Costco gold buyers will have to pay a markup on their bars. Known as a spread, shops charge 2% more than the going market rate. This is not abnormal, though. Online gold traders also charge a spread for their non-wholesale transactions. Costco’s premium is within the industry range, which doesn’t make the deal any worse.
In fact, with the bonuses offered by Costco on precious metal purchases, some shoppers may effectively eliminate the premium. Those who purchase their bars at the store using Citigroup credit cards are entitled to 2% cash back on their purchase. Costco executive members can receive a additional 2% cash back.
On the other hand, Costco does not offer its members any opportunity to purchase gold in large quantities. When the metal is in stock, buyers are limited to five bars per transaction. Therefore, if investors wish to accumulate a significant amount of the metal, they will need to turn to a precious metals dealer.
Buying gold at Costco also means experiencing the same pitfalls as those who purchase the physical metal from online retailers. However, these inconveniences are avoided for investors who purchase gold on paper. Once gold is purchased at Costco, the consumer is responsible for its safekeeping. It’s a scenario not unlike putting money in a mattress, and it comes with risks. To avoid this, gold can be insured and stored in a vault, but these are additional expenses.
By contrast, investments in paper gold – such as owning shares of a gold ETF, which can be pegged to physical gold held in insured vaults – provide investors with the same peace of mind without having to pay extra for it. These investments are also more liquid than physical gold, meaning they are easier to buy and sell since they are listed on stock exchanges. Some gold ETFs even pay dividends, meaning they can play a role in a strategy to generate passive income while benefiting from the price strength of the underlying commodity.
That said, buying gold from Costco is no worse than buying it from a dealer if you don’t worry about the purchase limit. Could be Better than buying from a gold dealer in some cases, as you don’t have to worry about potential scams and salesmanship and can earn up to 4% cash back. But there are still options for investing in gold that offer greater safety, greater liquidity and less hassle than holding onto the bullion yourself.
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