Why There's A Gold Rush at Costco

Shoppers at the warehouse club Costco, known for its inflation-proof $1.50 hot dog and soda deal, have been stocking up on something a bit fancier: 1-ounce bars of gold. 

The bars, apparently a relatively new offering at Costco, have been flying off the digital shelves, according to company officials. 

“I've gotten a couple of calls that people have seen online that we've been selling one-ounce gold bars,” Costco CFO Richard Galanti said in an earnings call last month. “Yes, but when we load them on the site, they're typically gone within a few hours and we limit two per member.”

It’s unclear exactly how much of a gold rush is really going on at Costco. The retailer didn’t return messages asking for details, such as how many gold bars they’ve been buying and selling, and when they began putting gold bars on their site. The gold bars, manufactured by precious metal refiners PAMP in Switzerland and Rand in South Africa,  are for members only, and are non-returnable, according to a listing on the Costco website.

Late last week, the bars briefly went on sale for $1,949.99, about a 4.3% markup over the $1869.30 spot price for an ounce of gold that day, according to a screenshot shared on social media. 

But is gold a good investment? And if so, does it make sense to buy it at Costco, as if it were a bag of pretzels? Experts say it can—under certain circumstances. 

Why Some Investors Love Gold 

There are good reasons to include some amount of gold in an investment portfolio, said George Milling-Stanley, chief gold strategist at State Street Global Advisors. Because the price of gold isn’t strongly connected to price changes for typical investments like stocks and bonds, gold can help shield investors from broader market downturns. 

“It often works as a very important safe haven benefit in a portfolio,” said Joe Cavatoni, market strategist at the World Gold Council. “So when you have a moment of market risk and uncertainty, you'll see that gold will actually perform well.” 

Case in point: gold has shone brighter since Oct. 7, when Palestinian militant group Hamas launched a terrorist attack against Israel, prompting Israel to retaliate against Palestine with intense bombing and a threatened invasion of the Gaza Strip.

Fears about the war escalating and spreading to other countries drove the price of gold to $1,921.10 an ounce as of Monday, from $1830.20 as of Oct. 6, a 5% increase. 

Experts who recommend gold typically say it should make up about 2% to 10% of a portfolio.

“Gold can help to enhance the returns of a properly balanced portfolio,” Milling-Stanley said.  “And gold can also help to reduce the volatility of the same portfolio so that it's going to help to reduce the risk. Anything that boosts risk-adjusted returns, I think deserves a place in any portfolio,” 

However, there are some downsides to physically buying a piece of gold. 

“There's a premium of up to 5% When you go to buy it, and there's often a discount of up to 5% when you want to sell it,” Milling-Stanley said. “If you want to buy physical gold and take it home, then gold's really got to go up 10% before you actually break even.” 

Buying and selling an actual, physical piece of gold for a fair price without dealing in bulk and having contacts in the industry can be so challenging that some gold experts don’t recommend trying it. 

Taylor Dibenedetto, owner of TMT Cash for Gold in Toms River, New Jersey, said his advice for the would-be retail gold investor is not to try it. 

“Buying retail will never make you money over time,” he said. 

Sales taxes pose another headwind for retail gold buyers. Some states exempt purchases of precious metals from sales taxes, while others do not.

Dave Nelson, a sales manager in Portland, Oregon—a state where there’s no sales tax—said he turned a quick profit the last time gold bars went on sale at Costco. He said his Costco membership discounts and credit card rewards offset the premium that the retailer charged.

“It arrived in my office the next day. I walked across the street to the coin shop and sold it for spot, making roughly 50, 60 bucks in profit by the time I'm done,” Nelson said. “And then I walked across the street again, put that money in the bank and paid my credit card.”

Is Physical Gold the Best Option?

Milling-Stanley said investors will make out better buying a gold Exchange-Traded Fund (ETF), a financial asset that tracks the price of gold without the friction involved in having an actual piece of metal in your possession. 

For certain buyers, an ETF is no substitute for the real thing. George Funkhouser, owner of D&Y Trading, a gold dealer in Pennsville, New Jersey, said some of his clients worry about the stability of the financial system and the U.S. dollar, and want to protect themselves against the possibility of those things collapsing. 

“Gold is always there,” Funkhouser said. “If you have it in your hand, you know somebody in the world will recognize that and give you value.”

Indeed, some sales pitches for gold investments run towards the apocalyptic. The U.S. Gold Bureau, an online gold retailer, sells a “survivalist starter package” of gold and silver bars and coins, touting their usefulness to “barter-and-trade in times of financial collapse.”

Nelson said he had a small stockpile of gold coins that could come in handy in case of a major earthquake.

Gold may have usefulness as a hedge against inflation and declines in the value of the U.S. dollar, even outside of survival situations, Milling-Stanley said. 

“You don't have to think of the Armageddon scenario,” he said. “But whenever we've had any significant weakness in the dollar, or the stock market, that same same sort of thing applies, and gold tends to perform. And I think that's part of the appeal.”

There’s also an undeniable psychological appeal to having physical possession of a chunk of gold beyond its rational value in a portfolio.

“That, I think, is one of the things that often drives people to want to own the physical product themselves, so they can actually handle it, which may not be the most efficient way of investing, but it gives a different kind of satisfaction,” Milling-Stanley said. “There’s an emotional satisfaction to being able to to handle gold coins, for example, or small gold bars. No question. I think the Costco products are going to be very, very popular.”

Costco is not the only major retailer offering gold. Gold bars can be found on Amazon and Walmart’s websites, though they’re offered by third-party sellers, not the companies themselves. 

The deep psychological appeal of gold explains why Nelson hung on to one of the two gold bars he bought from Costco.

"I realize that if I put my cash into the stock market or an index fund and let it grow, it would grow a lot faster, but I can't enjoy it the way I enjoy the gold," Nelson said. "It's just fun to touch it and hold it and feel it.... There’s always that moment from like the Lord of the Rings: ‘Maybe I’ll just keep it.'”