Costco's Bullion Program: A Tale of Two Spreads

Costco's gold bullion program has been making waves in the market, and for good reason. The retail giant is now moving an estimated $100-200 million in bullion per month, generating 'minimal profit' according to Wells Fargo equity analyst Edward Kelly.

The key to Costco's success lies in its pricing strategy. Unlike traditional dealers who charge a 5-10% markup, Costco offers gold bars at a premium of just 1-3% above spot, with some Executive Members able to stack a 2% membership reward and credit-card cash-back, driving the net premium well below the posted markup.

But here's the catch: while Costco may be offering near-spot gold exposure for buyers, its lack of a buyback service means that members who need to sell their gold are forced to resell through traditional dealers, often at a much wider spread. In fact, according to BullionExchanges, some dealers have been moving their buyback quotes from spot plus $5 to spot minus 2.5%, highlighting the asymmetry in the market.