Costco has made a significant mark in the gold market since it started selling gold bars online last year. According to a recent note by Wells Fargo analyst Edward Kelly, the retailer’s monthly revenue from gold sales is estimated to be between $100 million and $200 million. This success can be attributed to Costco’s aggressive pricing and high level of customer trust.
The launch of Costco’s online gold sales has generated a sharp uptick in momentum, with frequent Reddit posts and quick sell-outs of products. However, despite the impressive revenue figures, there are limitations to the profitability of this business. The low premium on gold bars and the additional cash back offers for executive members and Citigroup cardholders indicate that Costco’s gold sales may not be contributing significantly to the company’s profits. In fact, the Wells Fargo analyst suggests that the pricing and shipping costs associated with gold sales suggest a very low-profit business at best.
The record high prices of gold have likely played a role in Costco’s success. Gold prices hit a record high on April 8 for the seventh consecutive session, driven by central bank purchases and geopolitical tensions. Spot gold reached $2,365.09 per ounce, and U.S. gold futures saw a 0.4 percent gain.
Central banks, particularly in Asia, have been major buyers of gold in recent months. China’s central bank added 160,000 troy ounces of gold to its reserves in March, while countries like Turkey, India, and Kazakhstan have also been increasing their gold purchases. Geopolitical tensions and the anticipation of lower interest rates have further fueled the demand for gold.
DataTrek Research predicts that gold purchases will continue to pick up later in the year. Many foreign governments are seeking to hedge against negative geopolitical outcomes that may impact other risk assets like stocks. Gold bullion and other precious metals are seen as a hedge against inflation and uncertainties. However, higher interest rates tend to diminish the appeal of holding non-yielding assets like gold.
Despite the potential risks and limitations, Costco’s foray into the gold market has been a success in terms of generating revenue and attracting customer interest. With its aggressive pricing strategies and high level of customer trust, Costco has solidified its position as a major player in the gold industry. As gold prices continue to rise and geopolitical tensions persist, it will be interesting to see how Costco’s online gold sales evolve and contribute to the company’s overall profitability.
Sources: CNBC, Reuters
