Costco now sells gold bars. Are they a good investment?
Wholesaler is offering one-ounce gold bars for $2,679.99 a piece
Canadians can now buy gold bars at Costco, but one financial expert warns it might be an investment with limited return — unless you're planning to flee the country.
"Part of [gold's] mystique comes from the ability that it's easy to carry around … you can carry a lot of money in a suitcase if you've got gold," said Will Huggins, an associate professor of finance and economics at McMaster University's DeGroote School of Business.
He explained that "gold is awesome for people who have really unstable currencies," and can represent an attractive, stable investment in volatile economies.
"It's just not really a problem we have in Canada," he told The Current's Matt Galloway.
The 1 oz., 24-carat gold bars are on sale at Costco in Canada for $2,679.99 a piece, with member customers limited to buying a maximum of two bars every seven days. CBS reported last week that Richard Galanti, chief financial officer at Costco, said the bars were selling out within hours every time inventory was added to the company's website.
It's not like a herd of cattle or some land or a corporate entity ... it's just a yellow rock.- Will Huggins
Huggins spoke with Galloway about the pros and cons of investing in gold. Here is part of their conversation.
You can now buy gold at Costco. What do you make of that?
I'd say it's a pretty slick piece of marketing, quite frankly.
There doesn't seem to be any sort of advantage to buying your gold from Costco compared to buying it from, say, the TD Bank … But I think it plays on an edge of who Costco's customers are.
Tell me more about that and the demographic that would be buying gold from a wholesaler.
For the most part, the reason people buy gold is because they've all been told the same story we all heard as a kid: that gold was a hedge against inflation. And as a result, when we start to see the ghost of inflation rising back up after 40 years, people think, "I should buy some gold."
So pretty much anybody who can sell gold is able to tap into people who have these inflationary fears.
Now, the biggest group of people who have those fears are those who were adults during the late '70s and early '80s, and they remember very specifically what happened when interest rates started hitting 18, 20 per cent for mortgages.
Those people are now in their 60s and 70s, and the idea of having their financial nest egg destroyed when they can no longer replace it is terrifying.
So [buying] gold is mostly done because people are afraid, not because it's been a great asset. It hasn't done anything in three years. It's the same price as it was, you know, two months into the pandemic.
What's the appeal of buying a bar of gold?
The real appeal is that it plays to mythology, that gold is safe. Gold is secure. Gold always holds value.
There's a storyline that government currencies aren't backed by anything and, as a result, they can just print them up infinitely, and that money is definitely going to zero. The problem with that story is that I've been hearing it since I was like six years old, right? And it obviously hasn't happened.
It's not to say that it can't happen, it's just pretty remote. And a lot of the rationale behind people trying to hoard gold is that they seem to be trying to hedge against that remote possibility.
But honestly, if civilization collapses, at that point we got a lot bigger problems on our hands.
Is a gold bar a worthwhile investment right now?
I think there's some real problems with making an individual purchase of a bar of gold, and it's not so much that gold is a good or bad investment.
When I look at this, gold doesn't provide any sort of yield. It doesn't actually hedge against inflation. And if you're going to store gold bars at your house, you're kind of waiting to be robbed. That's like keeping $40,000, $50,000 bucks worth of cash in your house. You would want to insure it, you've got to worry about security on this.
Go back to the yield … if you happen to have disposable income [and put it] into a savings account, you can get a decent return in interest.
The Government of Canada will pay you 5 per cent a year as an annualized rate right now for taking basically no risk at all. So everything's in competition with that.
The value of the gold that I buy — is that going up anywhere near 5 per cent?
It's not necessarily going up at all. In fact, gold doesn't yield. That's always been one of the challenges of gold throughout economic history, is it doesn't grow.
It's not like a herd of cattle or some land or a corporate entity that we can keep bringing new people into. It's just a yellow rock.
Its advantage, strictly speaking, is that it is not correlated very much with stocks, bonds, real estate and other things people owe.
If you buy the bar of gold from the big box store and you want to sell it, how do you go about selling gold?
That's the tricky part, right? Like everybody's like, "Oh, Costco's selling me gold" — cool. You gave Costco some cash, and they are not interested in buying that gold back from you.
Will the bank buy it back from you?
You can't really walk into a TD Bank branch and be like, "Here's my three ounces of gold. I'd like $7,500."
It takes a little bit of time and there's usually a cost. There's usually about a half a percent, maybe a 1 per cent brokerage fee, effectively, to be able to move out of your asset into something you can spend.
So there's a loss on gold on moving in and out of gold, on top of it all.
Audio produced by Amanda Grant. Q&A edited for length and clarity
