The Blubber

Sales of gold bars at Costco are booming, with analysts at Wells Fargo estimating revenue could be as high as $100 million to $200 million per month. This rapid growth comes since the precious metal was introduced to the warehouse club in late summer 2023.

Edward Kelly, an equity analyst at Wells Fargo, noted the significant interest in Costco's gold bars, attributing it to the company's competitive pricing and strong customer trust. He pointed to the increasing frequency of Reddit posts, quick online sell-outs, and robust monthly e-commerce sales as indicators of the product's momentum since its launch.

If Kelly's assessment is accurate, this would mark a substantial increase for a product that debuted just last August, generating about $100 million in sales in Costco's fiscal first quarter ending in late November 2023.

Costco's 1-ounce gold bars, made of nearly pure 24-karat gold, are estimated to be sold at about 2% above the spot price, which was around $2,357 an ounce as of Tuesday morning. This puts the price at Costco just above $2,400.

Gold prices have surged this year, rising over 13% in 2024, driven by persistent inflation since 2022 and investor concerns over the deteriorating U.S. fiscal situation, with the government facing a $2 trillion deficit this year and a total debt exceeding $34.6 trillion.

While the sales benefit Costco's top line, the impact on bottom-line profit is limited. The low premium for gold bars, combined with Costco's 2% cash back for executive members and additional 2% for Citigroup credit card users, means the business is likely low profit at best.

Despite this, gold remains an attractive investment, serving as a natural hedge against inflation and geopolitical uncertainties, particularly in regions like the Middle East and Eastern Europe. Central banks, especially in Asia, continue to be significant buyers of gold, reinforcing its status as a hedge for diversified portfolios.