OAN’s Brooke Mallory
1:10 PM – Wednesday, April 10, 2024
At Costco, gold is a hot commodity. The big-box retailer’s yellow metal sales, which started last year, have grown significantly.
As a matter of fact, sales have accelerated so much that Wells Fargo analysts predict that its revenue “may now be running at” up to $200 million per month after Bullion entered 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,” said Edward Kelly, an equity analyst at Wells Fargo. “The accelerating frequency of Reddit posts, quick on-line sell-outs of product, and COST’s robust monthly eComm sales suggest a sharp uptick in momentum since the launch.”
That would be a significant jump for a product that only made its debut in August of last year and brought in over $100 million in sales during Costco’s first fiscal quarter, which concluded in late November of 2023.
“The company’s first location, opened in 1976 under the Price Club name, was in a converted airplane hangar on Morena Boulevard in San Diego, California. Originally serving only small businesses, the company found it could achieve far greater buying clout by also serving a selected audience of non-business members,” Costco’s website states.
One-ounce bars consisting of nearly pure 24-karat gold are available at Costco. It is estimated that the product often sells for roughly 2% above the current price, which as of Tuesday morning was approximately $2,357 an ounce, even though the price is not published online to non-members. Based on these estimates, the cost at Costco would be a little higher than $2,400.
This year, investors’ concerns about the worsening U.S. economic position and a prolonged wave of inflation that began in 2022 have driven spot prices of gold up over 13% in 2024. The government’s debt load has topped $34.6 trillion, and this year it is expected to run a $2 trillion deficit.
Meanwhile, selling gold bars has been simple for a major company that takes pride in offering a wide range of options to customers.
However, a couple of catches remain: Sales are now restricted to five per client (up from two previously), and while Costco’s top line profits greatly from this policy, the bottom line profit picture is different. This is due to the fact that the store offers 2% cash back for executive members and an additional 2% for customers who use their Citigroup credit cards, on top of the little premium it receives for gold bars. According to Kelly, the sales are boosting general product sales by roughly 3% but making little to no profit.
Although geopolitical upheaval in the Middle East and Eastern Europe has raised concerns about financial stability, gold is still considered a natural inflation hedge.
According to DataTrek Research, central banks have historically been major purchasers of gold, particularly in Asia. The surge in prices this year indicates that although purchases may decline in the first half of 2024, they are probably going to increase in the latter part of the year.
“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,” said DataTrek co-founder Nicholas Colas. “The only good news is that this reinforces the idea of gold as a reasonable hedge for diversified portfolios.”
UPDATE: Top date corrected – 2023 date was changed to 2024.
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