I bought an air fryer from Costco. Should I now buy gold?

By Charles Passy

The warehouse chain has done a brisk business selling the precious metal.

When I heard that Costco (COST) is now doing a brisk business selling one-ounce gold bars - up to $200 million worth each month, according to reports - I immediately thought of the air-fryer I purchased at the warehouse chain a few years ago.

I'm not equating the precious metal to the kitchen appliance in a direct sense. And to be clear, the air fryer is certainly not made out of gold. Anything but. It's a fairly standard model that cost me under $100.

But I did purchase it at Costco. And the purchase is a perfect example of how the retailer works its, well, retail magic.

I didn't arrive at my preferred Costco location looking for an air fryer. As with almost every trip I've made to the membership-based, low-priced retailer since I joined it about three decades ago, I was there with my usual shopping list of everyday items: toilet paper, laundry detergent, tomato sauce, a couple of bags of salad mix, etc. But then I saw that air fryer at the front of the store, beckoning like the kitchen helper of my dreams.

So, I purchased it, thinking I could use it to make healthier versions of any number of dishes. Plus, I figured if it's at Costco, the price can't be beat.

I'm sure I got a good deal, but I can't really say the fryer has proved its worth in the long run. I find it noisy and a bit of a pain to operate, so I've used it all of about a dozen times. As is the case with many impulse purchases, what seemed like a smart idea in the spur of the moment hasn't quite panned out.

Which brings me back to those gold bars. Since they are often sold through Costco's online channel, they can't necessarily be compared to an air fryer purchased as an addendum to a 30-pack of toilet paper at the store. But they clearly have become an "it" item among Costco shoppers.

'What makes them unique is this ridiculously wide array of products under one roof.'Marketing executive Jeff Moore

Retail and marketing experts say that speaks to the retailer's keen ability to position a product - to the point Costco can easily convince us to buy that which we may not need to buy.

As they describe it, Costco casts a spell on shoppers in a variety of ways. It employs some of the classic sales strategies, such as placing a hot product in a spot where shoppers can't miss it - i.e. that air fryer at the front of the store.

But Costco also creates an enticing world of abundance, experts say: You shop there, in person or online, precisely because they have everything from toilet paper to air fryers to gold bars. In the process, you may end up buying a little bit of everything.

"What makes them unique is this ridiculously wide array of products under one roof," said Jeff Moore, a Tennessee-based marketing executive.

In addition, Costco appeals because of its low costs. Experts say the pricing especially results from the retailer's sheer buying power with product manufacturers (meaning it can negotiate volume deals on merchandise and pass those savings on to customers) and its no-frills approach (unless you can't count wooden pallets as a décor item, Costco doesn't exactly spend a lot on store design).

Speaking of low prices, don't forget Costco's well-known loss leaders - products that are sold at a tremendous discount to seemingly get people in the door (or perhaps, marketing experts say, to keep them paying their $60 for their Costco annual basic membership).

The Costco $1.50 hot dog-and-soda combo and $4.99 rotisserie chicken are the most well-known examples. But the gold bars could arguably fit the loss-leader profile as well.

'We're an item-driven business. We're always coming up with new items and new categories of items."Costco Chief Financial Officer Richard Galanti

The retailer reportedly has a 2% markup on the bars - meaning they cost that much above the roughly $2,350-per-ounce current spot price of gold. But as Costco Chief Financial Officer Richard Galanti explained to me, if you've paid for a Costco executive membership ($120 annually), you're getting a 2% rebate on all purchases. Galanti added that if you use the Costco-branded Visa (V) to make the purchase, you're getting an additional 2% cash back. In effect, that means the bars could actually cost less than the price of gold.

Either way, Galanti says the bars fit into Costco's ethos of offering more and more.

"We're an item-driven business," he explained. "We're always coming up with new items and new categories of items."

But here's the potential rub: Even if you're getting a great deal on the gold bars, are they worth buying, especially for investment purposes?

To hear many financial professionals tell it, that's a hard no. Begin with the fact gold is an investment that pays no interest or dividends - it's purchased simply in the hope its value will increase. Some advisers say it can have a role in a portfolio as a hedge against inflation or currency devaluation, but generally a small one. Greg McBride, chief financial analyst with Bankrate, says he'd limit the allocation to 5%.

McBride added this caveat: "There's a guy in Omaha who's done quite well without it" - a reference to legendary investor Warren Buffett, who's known for being anti-gold.

But if you're going to buy gold as an investment, you're far better off buying it in a non-physical form, such as an ETF, financial professionals say. That's because owning physical gold creates issues of storage and insurance. And as Michael Rosen, chief investment officer at the California-based firm Angeles Investments, joked: If you put a gold bar in your mattress for safekeeping, "it will make your mattress lumpy."

Still, what about those folks buying up millions of dollars in gold bars each month through Costco? Are they all wrong?

I'll let others be the judge of that.

Costco, however, tempts us at every turn - that's a point that Penn and Kim Holderness, husband-and-wife creators of many a viral video, have spoofed most memorably.

One of their Costco videos shows them at a warehouse location buying everything from wild-caught sea cucumbers to personal water-filter straws. Penn notes that the latter will allow him to sip freely from mountain streams, notwithstanding the fact he never goes to the mountains.

Naturally, that led me to ask Penn if he was planning on purchasing some gold bars from Costco. He admitted the lure was there.

"If I were in a store and I saw gold, I would not walk by," he said.

-Charles Passy

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04-21-24 0955ET

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