There’s a modern-day gold rush going on at Costco, with the big retailer selling up to $200 million worth of gold bars every month, according to a Wells Fargo analysis. The sales are a win for Costco, but it’s less clear whether they’re a win for customers who buy the bars.
Customers have been buying 1-ounce bars since last October, paying about $2,000 a piece. At a time of runaway inflation and growing economic uncertainty and political instability, investing in gold may seem like an attractive alternative to other types of investments in which consumers are losing confidence.
So the fervor makes sense and the desire to buy gold is nothing new. But real gold can be difficult for the average person to purchase without a significant markup, if they can find it at all. Costco, on the other hand, is a reliable seller that consumers trust.
But financial advisors urge caution. First, they say investors need to be smart about why they buy physical bullion. If it’s out of fear or extreme sadness about the future, it’s never a good time to invest in anything. “When economic anxiety or instability is high, the people who typically profit from precious metals are sellers,” notes the U.S. Commodity Futures Trading Commission. “Rewards, fees and commissions can also drain the profit from your purchase.”
“The mob mentality of rushing to Costco to buy gold is not considered a sound investment decision,” says Steve Azoury, a Michigan-based licensed financial advisor. “Instead, it’s more like the rush to buy a t-shirt at a Taylor Swift concert. As a small part of your portfolio, gold could act as a hedge against inflation, but don’t bet on it.”
It can also be easy to overpay, as the average consumer doesn’t have much experience buying and selling precious metals. And financial planners say it doesn’t have the same long-term returns that stocks have had. While nothing is guaranteed in the future, for pension savers it may not be the best option.
Selling physical gold can be more difficult than buying it, says Jake Skelhorn, a certified financial planner (CFP) in Florida. And the only way to make money from physical gold is to sell it, while stocks can offer dividends.
“In some cases, you may be able to sell it quickly, but that usually means you’ll get a price much lower than the market or ‘spot’ price,” Skelhorn says. “In any case, selling gold requires physical delivery to the buyer, while stocks, bonds, ETFs, [and] mutual funds can be sold from the palm of your hand.
Financial planners also emphasize the costs of storing and insuring physical gold. It’s much easier to steal a Costco gold bar than an IRA balance.
And then there are the tax implications. Physical gold bars are taxed as collectibles, making them subject to a maximum rate of 28%. This is significantly higher than the standard long-term capital gain rate applied to other investments (or even gold-backed ETFs).
That said, Chase notes that the long-term value of gold has increased over the past 20 years. It also doesn’t hurt to use gold to diversify a portfolio, as long as it’s a small percentage, say 5% or less, of your holdings.
However, due to the complexity, Costco customers may be better off paying $1.50 for a hotdog and purchasing their investments outside of the retailer.