(Kitco News) – The precious metals sector has seen a few defining moments that have created a paradigm shift in the marketplace, and one strategist is wondering if gold is on the cusp of another disruptive event.
In a recent opinion piece, Nicky Shiels, Head of Research & Metals Strategy at MKS PAMP, said that since Costco started selling one-ounce gold bars on its website in early 2023, the precious metal has attracted a lot more mainstream attention.
In the past year, Costco’s gold sales have exploded, and one-ounce bars are sold out online within a few hours. Earlier in April, equity analysts at Wells Fargo estimated that the giant retailer sells between $100 million and $200 million ounces of gold monthly.
Wells Fargo hypothesized that Costco’s gold sales are more about driving online sales and attention than boosting the company’s bottom line.
With its aggressive pricing, executive Costco members can earn 2% cash back rewards and another 2% cash back when purchases are made with a Costco credit card. Shiels noted that these are attractive incentives for retail consumers.
While this “Costco” moment may not be the exact equivalent of the early 2000s when the first gold-backed exchange-traded product was first launched, Shiels said that these sales are helping to transform the market.
“The Costco Gold & subsequent media boom has already punched above its raw (fundamental) weight in influencing opinion; it alone is putting Gold as an asset class back on the map for new (that’s the key word here) retail investors,” she said. “Game-changing market moments come’n go. Some are just well-timed, coincidentally, or not. GLD was developed a couple of years after 9/11 and at the start of zero interest rates, easily creating a bigger path for investors to access the metal. Costco has done more for sentiment and opening new channels when trust has completely broken down post-COVID.”
Shiels also noted that Costco’s timing into the gold market has been fortuitous as a perfect storm of higher inflation, economic uncertainty, and geopolitical turn has created a perfect storm for physical demand.
“The timing, heading into a tense US election year where people are fearful of inflation and growing economic uncertainty, is key. Politicians and economists say that inflation has fallen from 9% to 3%, but consumers don’t feel that way. There is no simpler (or primal) way to feel inflation than the impact it has on everyday household items like groceries. And now consumers can purchase the traditional inflation hedge at their local Costco,” she said.
Shiels also noted that a new consumer demographic is also driving gold demand as Millennials, worried about their future, are attracted to traditional safe-haven assets.
“‘The peoples’ confidence in the U.S.’ ability to destroy itself over time is at an all-time high, and they are seeking a more traditional escape (in assets like Gold) via traditional outlets (in outlets like Costco),” she said.
Shiels also noted that Costco’s robust gold sales have defied a few interesting trends in the physical marketplace. Retailers are buying gold as prices trade near record highs. Historically, higher gold prices have weighed on physical demand.
However, this historical trend is seen in more traditional bullion vehicles.
“While consumers are snapping up bars at Costco, subdued coin premiums and Mint sales estimates (US Mint Gold coin sales down were 25% in Q1’24; Perth Mint Gold sales hit its lowest in 5 years in March 2024) indicate aggregate retail demand in the US & Western Europe is subdued,” Sheils said.
Although this new Costco phenomenon is attracting mainstream media attention, Shiels said that she sees it as a part of a much larger physical landscape. She noted that Western consumers are only following the trend set by Asian consumers.
Putting Costco sales into perspective, Shiels said these purchases are just one piece of a broader dynamic marketplace.
“While the estimated $200mn per month of sales equates to less than 1% of annual Gold demand, as of March 2024, there were 130million (global) Costco members. At a 5oz Gold cap applied to bar purchases, that equates to 640mn oz of Gold (versus just 4mn oz in 2023 for US coin & bar Gold demand), IF every member purchased,” She said. “Overall, it’s hardly about actual ounces and the impact on Gold’s supply/demand balance sheet. Gold does not trade as a true commodity in that sense. What matters is sentiment, flows and importantly – market access.”
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