Buyer Beware: Costco Gold Is Easier to Purchase Than Sell

There's been a gold rush at Costco. As prices of the precious metal hit all-time highs on numerous occasions this year, it's fueled a buying spree for gold bars being sold by the members-only warehouse club.

Wells Fargo analysts said they expect Costco's revenue from gold sales to be between $100 million and $200 million per month. But despite the frenzy, some members may experience buyer's remorse if they try to sell their gold in the near future.

For one thing, the price of gold can be volatile. It has retreated from a high of $2,391 per troy ounce set on April 19 to $2,324 per troy ounce today. Additionally, investors holding the physical metal and hoping to sell at a profit may discover that gold bars aren't as easy to offload as gold stocks or gold ETFs.

Learning how to sell your gold is as important as knowing how to buy it. Here's what to know.

How to sell gold for the highest price

Beginning on April 11 — more than a week before gold set its most recent all-time high — Google search volume for "how to sell gold" spiked and has remained elevated since. At the same time, pawn shops have reportedly begun experiencing increased traffic with sellers urgently looking to cash in on the yellow metal.

However, liquidating gold bars, coins or even jewelry at a pawn shop should be the last resort since the price these stores are likely to offer will pale in comparison to those made by the best online gold dealers.

According to Pawn America, a Midwest chain founded in 1991, "Most pawnshops try to maintain a 38–50 percent profit margin, which means they want to earn that much compared to what they offer you. So, they'll assess your item's market value, then reduce it by their profit margin."

While gold dealers' offers will also come in below the spot — or current market price — of gold, the spread (i.e., the markup from the price offered to a seller vs. the price offered to a buyer) won't have as much of an adverse effect for investors as it would for those who rush to their local pawn shop.

Gold dealers typically charge a spread of 2% to 20%, with many falling into the 5% to 8% range. The final percentage is determined by product purity, weight, current market prices, demand and individual dealer policies. This information can often be found in an online gold dealer's user agreement.

Therefore, the first step in selling your gold is being aware of its current spot price and the spread you'll face from a prospective buyer. The gold market trades 24 hours a day, Monday to Friday, so the price is in a nearly constant state of fluctuation. But having a baseline understanding of the spot will prepare you for an offer that also factors for the spread.

Identify reputable gold dealers

After researching gold's spot price and companies' spreads, the next step is identifying reputable and well-established gold dealers. This will result in more money in your pocket if and when you decide to sell your physical metal.

Create a list of traditional and online gold dealers that don't just sell precious metals but also purchase them. Be mindful that brick-and-mortar businesses operating in this space may have higher overheads, which could magnify their spread and result in a lower offer.

Acquaint yourself with customer satisfaction scores. Independent non-profit sites like the Better Business Bureau (BBB) and the Business Consumer Alliance (BCA) provide accreditations, ratings, customer reviews and a history of resolved customer complaints. Look for companies with accreditations as well as A+ ratings from the BBB and AAA ratings from the BCA, and avoid gold dealers with lower customer ratings (e.g., fewer than four stars) or business alerts about pending legal judgments, bankruptcies or punitive actions from the SEC.

Once investors have determined the company they'd like to work with, they can contact customer representatives to receive a quote. If that figure is agreeable to the seller, some gold dealers will lock in the price so it's not at risk of short-term market changes while the metals are in transit.

After agreeing to the purchase amount, shipping labels and explicit instructions are provided. In many cases, if the shipping and packaging instructions are not followed, the seller risks having the insurance voided for any damage or loss incurred during transit, the transaction can be rejected upon receipt or the quoted sale amount can be subject to market change policies if the products aren't received within the agreed upon period.

Once the products are received by the gold dealer, they're usually authenticated within one to three business days and payment is issued immediately thereafter.

Other ways to invest in gold

Physical gold is a store of value, meaning it retains long-term purchasing power without drastic deterioration. While the precious metal will likely never be worthless, investors should be aware of these liquidity challenges before purchasing bars, ingots, coins or rounds.

For investors interested in investing in gold or other precious metals but who want to circumvent the potential pitfalls of owning physical assets, there are numerous ways to add them to investment portfolios through equities.

Gold stocks are generally divided into three categories:

1. Senior miners: Established companies that often pay dividends and typically have lower risk and lower upside potential.

2. Junior miners: Smaller, less-established companies that don't pay dividends but reinvest earnings back into the company to fund growth. These are higher risk, higher reward companies.

3. Streaming companies: Companies that agree with mining companies (usually junior miners) to purchase all or part of their precious metals production at a predetermined price in exchange for providing financing for ongoing operations.

Alternatively, gold ETFs provide broad exposure while carrying less risk but also offer lower upside potential. While some ETFs are backed by physical gold, others hold a basket of gold-leveraged companies and often pay dividends.

Junior miner stocks typically have lower average daily trading volume, meaning they can be harder to offload on the open market. But investing in senior miners, streaming companies or gold ETFs is a surefire way of avoiding the hassles involved with trying to buy and sell physical gold.

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