By Naveen Athrappully
Online inventory of gold bars are being snapped up by customers rapidly, said Costco on Tuesday.
“I’ve gotten a couple of calls that people have seen online that we’ve been selling one-ounce gold bars, yes, but when we load them on the site, they’re typically gone within a few hours and we limit two per member,” said Richard Galanti, executive vice president of Costco, during the company’s Q4, 2023, earnings call on Sept. 26. At present, Costco offers 1 ounce, 24 karat gold bars from two suppliers on its website—South Africa’s Rand Refinery and Switzerland’s PAMP Suisse.
The gold bars are being sold for around $1,949 and $1,979 respectively, according to Business Insider, and are air shipped via UPS insured service. Both bars are “member-only” items. A Costco standard membership costs $60 per year, with the executive membership costing $120.
About three months ago, some people on Reddit had complained that they missed out on buying the gold bars when Costco listed them for sale.
Year over year, gold prices have risen from around $1,829 per ounce to about $1,873 as of Sept. 28, an increase of 2.4 percent.
In an interview with CNBC, Jonathan Rose, co-founder of Genesis Gold Group, said that the sale of gold bars is a good promotion strategy for Costco appealing to certain demographics among its shoppers.
“They’ve done their market research. I think it’s a very clever way to get their name in the news and have some great publicity,” he said.
“There is definitely a crossover of people living off the land, being self-sufficient, believing in your own currency. That’s the appeal to gold as a safe haven as people lose faith in the U.S. dollar.”
He pointed out that the safe-haven aspect of investing in gold remains strong given the economic challenges the United States is facing, including regulatory pressure on banks, inflation, and concerns about the commercial real estate market.
“We know what the road map looks like: Bank failures, commercial loans defaulting at an alarming rate … they don’t seem to have a handle on inflation, and that’s why they keep raising interest rates,” he said.
“The outlook for stability in the market isn’t good and people want a [tangible] asset that’s going to be a safe haven. That’s what gold and silver provide.”
A Golden Hedge
Gold is traditionally seen as a safe-haven asset by investors, primarily to protect wealth during economic uncertainties. The precious metal is considered a dependable hedge, mainly because gold has retained its value when alternatives like currencies decline.
According to the May 2023 “In Gold We Trust” report (pdf) published by Incrementum AG, a financial firm based in Liechtenstein, all major currencies like the U.S. Dollar, Euro, Swiss Franc, and Japanese Yen have lost 90 percent or more of their value against gold since 1971.
“Many people view gold primarily as an asset that they hope will rise in price. In doing so, however, they commit a momentous error in thinking. In reality, gold’s value does not fluctuate. What does change is the purchasing power of fiat currencies measured in gold,” it states.
“These move to varying degrees, but always as a group relative to gold, the immovable anchor. Thus, the price of gold does not rise, but fiat currencies depreciate over the long term relative to gold, some more, some less.”
By May, the purchasing power of currencies like the British pound, Japanese yen, and Swiss Franc had reached new all-time lows against gold since the outbreak of the Ukraine war.
Gold also performs well during stock market crashes. For instance, during the 2007–2009 recession, the S&P 500 index declined by 56.8 percent while gold jumped by 25.5 percent, according to an analysis by GoldSilver, a platform for buying and storing gold in insured vaults.
In six out of the eight biggest stock market declines between 1976 and 2011, gold registered positive returns, the analysis states. During the Black Monday event in 1987, the recession in 2001, and the sovereign debt crises in 2010 and 2012, gold gave positive returns.
However, some have questioned the notion of gold being viewed as some sort of perfect hedge against economic uncertainties. In an interview with CNBC back in 2021, Amy Arnott, a portfolio strategist at Morningstar, said that gold “is really not a perfect hedge.”
“There’s no guarantee if there’s a spike in inflation, gold will also generate above-average returns,” she said after analyzing the returns of various asset classes during periods of high inflation.
Ms. Arnott’s analysis showed that when annual inflation was around 6.5 percent between 1980 and 1984, gold prices lost 10 percent on average, and from 1988 to 1991 when inflation was running at about 4.6 percent, gold registered negative returns of 7.6 percent.
“If you look at the very long term, gold should hold its value against inflation. But in any shorter period, it may or may not be a good hedge,” she said.
Inflation, Economic Conditions
At present, inflation continues to remain elevated, coming in at 3.7 percent in August. Though it is down from the 9.1 percent peak in June last year, current inflation is still more than double the 1.4 percent registered in January 2021 when President Joe Biden assumed office.
Recent research from Bank of America shows that 67 percent of U.S. workers felt inflation was outpacing their salary or wage growth, up from 58 percent in February last year.
Meanwhile, experts are predicting a tough time ahead for the American economy.
JPMorgan Chase CEO Jamie Dimon warned that many American investors and businesses are not prepared to deal with a looming “worst case” economic scenario under which the Federal Reserve decides to push interest rates from a range of 5.25–5.5 percent to 7 percent while the country struggles under “stagflation.”
A report from S&P Global Market Intelligence last month showed that new orders were falling, input cost inflation was rising, and the pace of job creation was slowing.
“A near-stalling of business activity in August raises doubts over the strength of U.S. economic growth in the third quarter,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.