There are two major outside influences on the rare coin market; the value of the U.S. dollar/rate of inflation, and the price of gold bullion. And both of these factors are of course very related to one another. Rare coins are a classic inflation hedge and the last time we had big inflation and rising gold prices (the 1970s), rare coin prices went up over 1000%.
This recent quote from a nationally recognized rare coin dealer reiterates that inflation and the value of the US Dollar are the “major” outside influences on the rare coin market. Although I would agree that such a statement may prove to be true, I would caution readers to consider this also:
-Inflation can affect different parts of the economy at different times. For example, oil prices move up and down rapidly, because they are driven by the bids on the price of oil futures contracts. As a result, gas prices are also very volatile. This can drive up the price of food, as transportation costs to deliver it can rise quickly. For this reason, the price of food and energy is left out of the core inflation rate. (This is used by the Federal Reserve as a better indicator of true inflation.) So not all inflation is the same.
-Core inflation, or core CPI, is important because this is what the Federal Reserve looks at to decide whether or not to change the Fed Funds rate (interest rate charged to Banks). Core inflation is simply the Consumer Price Index (CPI) minus food and energy prices.
Given this information, just how did the Feds factor inflation back in the mid to late ‘70’s? Were the criteria for figuring the CPI the same as it is today? Is it fair or safe to assume that the forces that drive inflation, or for that matter, the criteria that tracks inflation, is the same of 3 decades ago? Perhaps these questions are relevant to the discussion before making any decisions about buying rare coins as an inflation hedge. Thoughts?
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