Costco's Gold Rush: How The Wholesaler Is Cashing In On Sales Of Silver, Gold

Highlights

• Costco's foray into precious metals hit a high note, with gold bars and silver coins flying off the virtual shelves online.
• The strategy is part of Costco's image as a treasure trove for shoppers, enticing members with exclusive and limited run items like precious metals.
• Investors tout gold and silver as solid investments, but experts warn against expecting high returns from Costco's gold bars.

Sales of precious metals have become a goldmine for big box wholesaler Costco.

The membership-driven company, known for selling bulk peanut butter among other staples, first tapped into the upscale market of precious metals investors in September, offering $2,000 gold ingots (prices are subject to change due to market fluctuations).

The gold was such a big seller over the holidays that the company recently expanded its offerings — with $675 packs of silver coins.

Available to members only, the one-ounce coins are 99.99 percent solid silver and come in packs of 25, according to the company's website.

The front of each coin features a Canadian maple leaf, and on the back is a likeness of England's King Charles III. Members can purchase a maximum of five non-refundable packs.

The precious metals are targeted towards collectors with considerable disposable income, and appear under the "Sports Memorabilia & Collectibles" section of the website.

So, what's up with Costco's gold bars?

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Precious Metals Are Making Costco A Mint

Costco's gold bars first went on sale in September 2023, and they've hawked a massive $100 million worth of the bling in the last quarter, according to sales reports.

Chief Financial Officer (CFO) Richard Galanti said that nearly every time the gold bars are replenished online (on Costco.com), the company sells out of its inventory "within a few hours."

When asked last holiday season which "top items" shoppers were buying, Galenti answered: "They're buying gold."

The gold bars are available exclusively on Costco's website, and customers are limited to buying just two ingots per member.

Bankrate reported that the "online only" policy came as "a nod certainly to the riskiness – to customers and itself – of moving so much value around in a small item," noting that the gold ingots fit easily into one hand.

According to Costco, the one-ounce bars come from South Africa's Rand Refinery, contain 999.9 percent pure gold, and are "individually stamped with a unique serial number."

In a recent earnings call, Galenti indicated that online sales grew more than 18 percent over the last year, due to the demand for gold bars and the recent addition of silver coins.

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24-Karat Marketing Strategy

CNN reported that Costco's move into the luxury goods market is "more about marketing than just about increasing sales."

"After all," CNN reported, "not many people are actually stashing away gold bars in their homes."

Chief Financial Officer Richard Galanti explained that precious metals were added to up the ante on Costco's brand image of "turning shopping trips into treasure hunts," as reported by the Wall Street Journal.

Costco's founder once described the marketing strategy this way:

We try to create an attitude that, if you see it, you ought to buy it because chances are it ain’t going to be there next time. That’s the treasure-hunt aspect. We constantly buy that stuff and intentionally run out of it from time to time.

In fact, Costco's website has a "Treasure Hunt" link, which takes shoppers to a list of limited-run items that include refrigerators, pool tables, and outdoor patio sets.

The strategy is obviously working, with the number of Costco's paid subscribers continuing to increase between 2014 and 2023, according to Statista.

There are now some 71 million paid members, up considerably from 65.8 million in 2023.

A basic Costco membership costs $60 a year, while an "Executive Membership" is $120 annually.

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Are Costco Precious Metals A Solid Investment?

Investors generally consider gold and silver to be "one of the most resilient investments."

The precious metals continue to become more in-demand, as investors anticipate that the Federal Reserve will soon cut interest rates.

CNN explained the market this way:

"When interest rates fall, holding income-paying assets (like bonds) becomes less appealing than owning the precious metals.

"When interest rates are low, falling or — as in this case — expected to fall, demand for Treasury bonds ebbs, and precious metals, which don’t pay out any interest, become relatively more attractive."

However, Bankrate may have taken some of the wind out of Costco's sails, recently publishing an article titled: "Why gold at Costco is a terrible investment."

The article quoted a senior investment analyst as saying it can be hard to recoup a fair market value on gold.

"The people who are probably most likely to generate a positive return are the sellers of the gold to Costco and Costco itself," said Mark Hamrick, senior economic analyst with Bankrate.

The article concludes:

"Those looking to find attractive returns from Costco’s sale of gold ingots should carefully understand the downsides of investing in physical gold."

Regardless, Costco's gold bars continue to bring home the gold and silver-coated bacon, and sales don't show any signs of slowing in the near future.

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