Costco is Selling Gold

image_pdfSave to pdf fileimage_printPrint

You read that correctly. Costco is selling gold. Business Insider has the story.

Costco has been selling one-ounce gold bars that it says get snapped up in hours.

“I’ve gotten a couple of calls that people have seen online that we’ve been selling one-ounce gold bars,” CFO Richard Galanti told investors Tuesday at the retailer’s fourth-quarter earnings call.

“Yes, but when we load them on the site, they’re typically gone within a few hours and we limit two per member.”

As a good economist, my mind immediately turned to price and cost. Costco is selling one ounce bars of 24 karat gold from the Rand Refinery (South Africa) for $1,949.99. Or you can buy from PAMP Suisse (Switzerland) for $1,979.99. Business Insider gives no reason for the $30 price difference.

Costco offers their standard 2% rebate on gold purchases to premium members. That reduces the net prices to $1,910.99 (Rand) and $1,940.39 (PAMP).

Is this a competitive price? Business Insider notes

At the time of writing, an ounce of gold on the open market was worth just under $1,890.

That “open market” price is, effectively, the wholesale price. Only gold dealers and large-volume purchasers can access that market. Costco presumably is not paying the retail price for their gold. Whether they qualify for the dealer price is an open question. My guess is that they are buying from a dealer at a price slightly above the “open market” price. Either way, Costco is making quite a few bucks on this deal.

How does Costco’s price compare to the competition? I turned to a source I’ve used before, JM Bullion. Here are the market statistics from October 3, 2023. The spot price was $1,834.82,

JM Bullion gold spot price Costco is selling gold

(click for larger image)

And here’s the cheapest ounce of gold you can buy.

On October 3, the spot price of gold was $1,834.82. That same day, JM Bullion would sell you a one ounce Canadian Maple Leaf coin (with abrasions) for $1,864.81.  But there are a couple of gotchas.

JM Bullion gold maple leaf abrasionsCostco is selling gold

(click for larger image)

That price is if you pay by check or wire transfer AND buy 20 or more coins.  Oops. Unless you have $37,296.20 sitting in your checking account, you can’t get this price.

Which is a shame because it’s only $29.99 over the wholesale price.  But one coin is $1.874.81, still only $39.99 over wholesale. Crypto is priced at about $19.50 above cash (depending on quantity). Credit and PayPal prices are about $77.90 more.  (Click here for the Excel workbook to see the exact price differences.)

So Costco is selling gold at a price $33.14 more than the Maple Leaf. The PAMP bar is $63.14 more. (The Excel workbook includes a sheet comparing Costco prices with the three levels of JM Bullion maple leafs with abrasions,)

Why the Maple Leaf?

The Maple Leaf is widely recognized as one of the most reputable gold coins in the world. But you pay a premium for a proof coin (or set). With abrasions, they remove their “collectible premium.” Canada Mint sells them at a significant discount. JP Bullion prices them in line with the retail price of gold bars and other non-collectible formats.

But what about non-scuffed coins? On October 3, the JM Bullion price of a proof one ounce Maple Leaf (random year, no abrasions) was $1,931.81 (cash, 1-9 coins)

JM Bullion gold maple leaf Costco is selling gold

(click for larger image)

Transactions Costs

“But Dr. Lima,” you say. “What about transactions cost?” In this case, the main transactions costs are shipping and insurance. JM Bullion states that both are included in the purchase price. Besides, if transactions costs were important, the JM price would be greater than at least one of the Costco prices.

“It’s immoral to let suckers keep their money.” That quotation is variously attributed to Canada Bill Jones  and W.C. Fields. The folks that run Costco seem to have taken this saying to heart.

 

Share if you feel like it

About Tony Lima

Retired after teaching economics at California State Univ., East Bay (Hayward, CA). Ph.D., economics, Stanford. Also taught MBA finance at the California University of Management and Technology. Occasionally take on a consulting project if it's interesting. Other interests include wine and technology.