Costco's Gold Bars Keep Selling Out. Should You Buy?

Costco started selling gold bars online last year and they proved a hit with customers. Soon after the retail giant started gold sales, Richard Galanti (then Costco CFO) told investors that the one-ounce gold bars were typically gone within a few hours of posting on the site.

Costco's gold bars may be flying off the (online) shelves, but the fact that lots of people are doing something doesn't always make it a good idea. If you're wondering whether you should buy, there are two questions to consider: Is gold the right investment for you? And if so, what's the best way to buy it?

Is gold a good investment?

If you're considering buying gold bars from Costco, think of it as an investment. An investment is an asset like stocks, bonds, real estate, and other commodities that can help you build long-term wealth. Sure, you can't put stocks in your Costco shopping cart. And you can earn Costco credit card rewards if you buy gold ingots, which is rarely possible with stocks. Even so, this is money you're investing for your future.

As such, research how gold might perform in comparison to other assets and consider how it fits in with your investment goals. As an investment, gold can be a way to diversify your portfolio. A lot of people view gold as a good store of value in turbulent times, particularly as it often performs better than stocks during recessions.

Some also see it as a hedge against inflation. It may hold its value even when the money in your bank account is losing spending power. For example, if you lived in a country like Venezuela (which saw inflation of almost 1,000,000% in 2018), gold would almost certainly feel like a safer way to hold your money.

But owning gold is also more complicated than having money in the bank, or stocks in a brokerage account, for that matter. For starters, if you buy physical gold, you'll need somewhere to keep it. You'll probably want to insure it. When you want to spend it, it won't be as easy as making a bank transfer. You'll have to first find somewhere to sell the gold. You'll probably lose money in commissions and spreads.

Finally, that gold won't be sitting in a safe producing little gold babies. Stocks might pay dividends and money in a savings account will earn interest. Your gold will only generate returns if you can sell it at a higher price than you bought it.

On which note, gold prices will go both up and down. Historically, the price of gold has trended upward, but with prices at all-time highs, there are no guarantees. It's also worth mentioning that the S&P 500 has performed better over long periods. Gold prices often go up in periods of economic uncertainty, but if you're a long-term investor, putting money into the stock market will often be a better bet.

What's the best way to buy gold?

If you decide there's a place for gold in your portfolio, think carefully about how you want to buy it. Costco has made gold bars convenient, but spending around $2,000 on a physical ingot is a lot of money. Costco's gold can only be bought online, and only by members.

There's a certain attraction to owning actual gold that you can touch. You might also own gold jewelry or coins, though you need to have a good understanding of the market. Ultimately, unless you're Gollum guarding your precious gold in The Lord of the Rings, holding physical gold as an investment can lose its shine.

If you don't want to worry about storage, insurance, and the hassle of resale, consider instead buying stocks in a gold-mining company. You might also invest in a gold ETF or mutual fund. Some will give you exposure to a mix of gold companies, while others hold physical gold. There will almost certainly be fees involved, but it is much easier to buy and sell stocks than gold bars.

Bottom line

There are many ways to save money by shopping at Costco. However, when viewed as an investment, Costco's gold bars will only make sense for a limited number of people. Even if you want to add gold to your portfolio alongside a mix of other investments, owning physical gold is a difficult way to build wealth.