What’s Driving Surging Gold Bar Sales at Costco?

Alongside its $1.50 hot dog and soda combo, gallon tubs of mayonnaise and value packs of socks, Costco, the warehouse retailer, has been selling gold bars since October.

Now, retail analysts say Costco is selling up to $200 million worth of gold and silver each month, according to an analysis from Wells Fargo.

Online forums and Reddit threads have cropped up where customers give each other advice on how to purchase the bars before they sell out.

“I’ve gotten a couple of calls that people have seen online that we’ve been selling one-ounce gold bars, yes, but when we load them on the site, they’re typically gone within a few hours,” Richard Galanti, executive vice president and chief financial officer, said in an earnings call in September.

Costco started selling gold bars in October.

Costco is now selling one-ounce, 24-karat gold bars, according to its online store. The bars can be purchased only by members, and the price varies based on market rates. As of Thursday, the bars were sold out for members online, but The Wall Street Journal reported that shoppers purchased them for around $2,000 in December.

Costco has also been selling silver coins, advertised as 99.9 percent pure silver, since January, according to an analyst report from Wells Fargo.

People buy gold in times of turmoil.

The precious metal has set a series of records as it surged to $2,350 per troy ounce, up roughly $300 since the start of March.

Buying gold becomes more common in times of economic turmoil. Although the U.S. economic outlook has improved and inflation has slowed, it remains higher than the targets from the Federal Reserve, said Sadiq S. Adatia, the chief investment officer for BMO Global Asset Management. And on Wednesday, a key inflation rate was revealed to be stronger than expected.

Investors have said they were puzzled about the rally.

Geopolitical concerns could also be a factor in an increasing interest in gold, Mr. Adatia said. There has been more interest in gold since Ukraine’s currency collapsed after Russia’s invasion, he said.

For those looking to purchase gold for the first time, Costco provides familiarity and ease, Mr. Adatia said.

“They make it convenient,” he said. “People can physically go in and pick it up and that’s it, versus opening up an account and buying gold shares.”

How much is Costco profiting from this?

Probably not too much.

Given its pricing and shipping costs, it’s likely a “very low profit business at best,” analysts with Wells Fargo wrote in a note to clients on Tuesday.

The company sold over $100 million of gold during its first quarter, or the three-month period ending on Sept. 30 last year, Mr. Galanti said on a December earnings call. However, those sales have likely grown since then and may now be running at $100 million to $200 million per month, which could increase its sales figures by 1 percent.

“The reason that we looked at this is that it’s becoming a larger contributor to sales for them,” Edward Kelly, managing director of equity research at Wells Fargo, said. “It’s not that $100 or $200 million a month is a lot for Costco, but it’s new business and they didn’t have that business last year.”

In the three-month period ending on Dec. 31, Costco’s e-commerce sales grew 18 percent compared to the same period a year prior, driven in part by demand for the precious metals, Mr. Galanti told investors on an earnings call in March.

Investing in metals can be volatile.

The Commodity Futures Trade Commission has urged caution when buying gold because precious metals can be highly volatile.

“Like other commodities, precious metal prices rise as demand goes up, so when economic anxiety or instability is high, the people who typically profit from precious metals are the sellers,” the agency wrote in a statement.

The commission likely puts that warning out to signal that it’s not a guaranteed investment, Larry Tentarelli, chief technical strategist for Blue Chip Daily Trend Report, said. He recommends the average person invest 3 to 5 percent of their assets in gold.