The Costco Gold Rush

Retail giant Costco has reported robust sales in gold, surpassing US$100 million in the latest quarter. Will retail demand become the next big driver for gold?

Costco's Chief Financial Officer, Richard Galanti, shared the bullish news on its stunning gold sales during an earnings call last week, marking the first quarter of the fiscal year 2024 for the company.

“You've probably read about the fact that we're selling one-ounce gold bars. We sold over $100 million of gold during the quarter”

Costco's remarkable gold sales, especially considering they are mostly done in 1oz transactions, provides remarkable insights into the robust demand for gold. Most notably, Costco is obviously not traditionally associated with gold purchases, yet the substantial sales indicate a noteworthy shift in consumer behaviour.

“When we load them [gold bars] on the site, they're typically gone within a few hours.”

Costco’s sales coincide with the World Gold Council’s findings of significantly higher total bar and coin demand since 2020 (retail) as well as overall gold demand in 2022 almost matching the all time high in 2011.

To no surprise, these impressive sales have resulted in strong profits for Costco as a whole, leading to a substantial increase in its share price, exceeding 45% as of December 18. Concurrently, gold prices have experienced a noteworthy uptick from around US$1,797 per ounce to over US$2,000, marking an increase of more than 10% year to date.

While Costco has started offering a range of gold products again, it doesn’t come at a price. With high spreads and a non-purpose-built store for buying precious metals, many aspects of a private, safe, and secure gold buying experience are removed. The Ainslie experience is built on privacy, security, great prices, and simplicity to buy bullion, with the ability to purchase gold, silver, and platinum in-store with our friendly staff in a private sales room, or buy bullion online and have it delivered fully insured, direct to your door.

Bart Melek, head of commodity strategies at TD Securities, is expecting gold to average US$2,100 in the second quarter of next year. He sees central bank gold buying demand to be a major driver of gold prices.

According to an Oct. 31 update by the World Gold Council (WGC), global central banks collectively bought an astonishing 800 tons of gold in the first three quarters of 2023. This is a 14 percent increase in gold buying compared to the same period last year.

“The People’s Bank of China (PBoC) regained the title of the largest buyer globally, increasing its gold reserves by 78 [tons] during the quarter (Q3). Since the start of the year, the PBoC has increased its gold holdings by 181t, to 2,192t (equivalent to 4 percent of total reserves),” WGC stated.

Additionally, a report by ING underscores the influence of safe-haven demand and the U.S. interest rate outlook in keeping gold prices elevated next year. The report anticipates a renewed interest from investors in gold, foreseeing a return to net inflows into gold Exchange Traded Funds (ETFs). While gold demand in exchanges presents a mixed picture, the net long positioning on gold at the COMEX exchange suggests potential for speculators to play a significant role in pushing gold prices higher in 2024.

Overall, it is a very interesting time for gold as a continued bullish move could come from a series of limitless catalysts due to the inherently strong retail demand. It is very good for the market to have such a diverse base of demand where there is no overreliance on institutional buying or Fed decision making as the main driver.