Inflation Poor Guide to Future Coin Values
October 28, 2009
I received an e-newsletter that mentioned inflation and coin prices. Many people believe there is a connection. There really isn’t a direct connection, but to explain can seem more like a word game.
Most coin prices depend on average collector incomes and the willingness of these collectors to spend that income on certain coins.
Both factors fluctuate or change and inflation plays a role in what people are paid, but the link is not direct.
The prices of many coins that were hobby staples in the 1960s simply sat or declined during the 1970s even though active collectors had more money in the 1970s because of inflation. Some coins are still at or below 1960s levels.
The nature of collecting was changing. It always does. Attention was redirected to new areas. Morgan dollars really came into their own in the 1970s and built up quite a following right on through the market peak in 1989. Prices nowadays for many of those coins are lower than they were then despite 20 years of inflation.
On the other hand, key coins like 1804 dollars and 1913 nickels have actually outpaced inflation as the prestige factor of owning the great rarities helped incite buyers to want to own these numismatic masterpieces.
Online registry sets give certain coin prices a nice boost as certain collectors compete to buy the best. This creates a phenomenon where the prices of a couple of coins at the top end of the grading scale go through the roof while those pieces in the more affordable end of the uncirculated scale simply languish despite inflation.
A few Lincoln cents that any collector can buy for a dollar or two in BU or proof have brought tens of thousands of dollars because they happen to be the coins pronounced to be the best of the millions or billions that exist.
The problem with the great rarities and coins in the very top grades is that almost nobody gets to play in that park. Action in this park makes headlines and creates numismatic history, but it does not help the average coin buyer make any money.
Coin buyers who are not guided by their innate interest in collecting specific series or type sets must be able to pick out coins that will appeal to collectors at the future date they will wish to sell and in a grade those future collectors will wish to buy. That isn’t easy. Inflation won’t overcome mistakes.
The obvious area to point to today for success is that occupied by gold coins. The price of gold has risen dramatically from the government controlled $35 an ounce that prevailed 1934-1973. Prices for coins valued for their metallic content have soared beyond what inflation would have mandated, even if you go back to 1933.
The general price level is up about 12 times since 1934. That would put gold at $420 from its $35 starting point, but whatever number you pick, it seems that gold’s price has outpaced inflation at the moment.
So, while inflation is a factor in the eventual price of coins, it is not the only factor. To buy any coin simply on the basis of expected future inflation can easily lead to disappointment if the past is any guide.
It is far better to be a collector. Your odds of buying the right coins improve and you have fun doing it.
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