(Kitco News) - Costco continues to see an insatiable appetite for physical gold and silver, which is helping to transform the marketplace.
Last week, the North American retailer published its third quarter results for the fiscal year, announcing a 9.1% increase in net sales to $57.39 billion, up from $52.60 billion last year.
At the same time, the company said it saw a 20.7% jump in online sales.
"Total e-commerce sales growth in the quarter was led by gold and silver bullions, gift cards and appliances," Costco Chief Financial Officer Gary Millerchip told investors Thursday in a conference call.
Millerchip provided no further insights into its gold and silver bullion sales. However, Costco’s precious metals strategy appears to be evolving in line with analyst expectations.
In a report published in April, analysts at Wells Fargo speculated that Costco’s gold bullion sales would drive earnings growth, as the company has made headlines worldwide.
The equity analysts said they estimate Costco is selling $100 to $200 million in bullion every month.
The analysts also noted that while bullion sales are helping to drive online sales, they are probably not adding much to the company’s bottom line.
“The company prices the product attractively, providing members gold at ~2% above spot prices before a 2% cash back reward for executive members and another 2% in cash back for those with the Citi card. That being said, pricing at that level and shipping costs suggests it’s a very low-profit business at best,” the analysts said.
Some analysts have said that Costco’s gold sales are not surprising as stubborn inflation is prompting many retail consumers to find ways to protect their purchasing power.
Others have said that the Costco phenomenon could be a new defining moment for the gold market. In a commentary published late April, Nicky Shiels, Head of Research & Metals Strategy at MKS PAMP, questioned whether Costco sales could lead to the same kind of demand created when gold-backed exchange-traded funds were introduced.
"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 in the commentary. "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."
However, Sheils concluded that Costco’s gold sales are just one part of a broadening landscape.
