The swift acceleration in sales since the introduction of gold bars to the warehouse club in late summer 2023 has been attributed to aggressive pricing, a strong level of customer trust, and increasing online sales.

Edward Kelly, an equity analyst at Wells Fargo, highlighted the significant interest in Costco's gold bars, citing the frequent Reddit posts, rapid sell-outs of the products online, and robust monthly e-commerce sales. This suggests a notable increase in momentum since the launch. If Kelly's assessment holds true, this would signify a significant milestone for a product that only debuted in August and generated approximately $100 million in sales during Costco's fiscal first quarter, ending in late November 2023.

The gold bars sold by Costco are 1-ounce bars made of nearly pure 24-karat gold. Though specific pricing information is not disclosed to non-members online, it is estimated that the product generally sells for around 2% above the spot price, which currently hovers around $2,357 per ounce as of Tuesday morning. This places Costco's pricing at just over $2,400.

The thriving sales of gold bars comes amidst a remarkable year for the precious metal, as spot prices have risen over 13% in 2024. This surge is primarily driven by concerns over inflation that started in 2022 and investor apprehension regarding the deteriorating U.S. fiscal situation. With the government on track for a $2 trillion deficit and a total debt load surpassing $34.6 trillion, gold has become an appealing investment option for many individuals.

While the sales of gold bars have considerably bolstered Costco's top line, the bottom-line profit is not as substantial. This is due to the low premium the store receives for the gold bars and the additional 2% cash back offered to executive members and Citigroup credit card users. According to Kelly, the sales contribute approximately 3% to general merchandise sales but do not significantly impact profit margins. The analyst suggests that pricing and shipping costs indicate the gold bar business is likely a low-profit venture at best.

However, as an investment choice, gold remains an attractive option in the current economic climate. Besides serving as a natural hedge against inflation, other factors such as geopolitical unrest in the Middle East and Eastern Europe contribute to the uncertainties surrounding financial stability. Central banks, particularly in Asia, have been substantial buyers of gold, and while purchases have declined in early 2024, DataTrek Research predicts a resurgence later in the year. This suggests that many foreign governments are utilizing gold as a hedge against negative catalysts affecting other risk assets like stocks.

While Costco officials have not immediately responded to requests for comment, the surge in gold sales has highlighted the warehouse club's prowess in providing diverse consumer choices. It is worth noting that there are some limitations on sales, with a maximum of five gold bars per customer, increased from the previous limit of two.

In conclusion, Costco's foray into selling gold bars has proven to be a lucrative endeavor, with monthly revenue estimated to surge to $100 million to $200 million. Although the profit margins are not significant due to low premiums and additional cashback offers, the sales contribute to general merchandise revenue. As gold continues to be viewed favorably as an investment, with various factors contributing to its appeal, Costco's strategic move into the gold market appears to be paying off.