By October 28, 2011 0 Comments Read More →

Is High Inflation Just Around the Corner?

How Rare Coins Performed During the Last Major Inflationary Spiral

By Mark Ferguson for CoinWeek – MFRareCoins.com

Our national debt load has grown to virtually $15 trillion today. Just three years ago it was around $10 trillion, and about 10 years ago the debt load was around $3 trillion. And now there’s talk that the Fed is considering a new round of “money printing” with “QE3,” in yet another attempt to stimulate the economy in the short term. But some Fed members are resisting this move, “in part because of worries the measures could ultimately instigate too much inflation,” according to the Wall Street Journal. How high can this debt load go, with a lagging economy, before inflation really kicks into high gear again? Some economic experts believe an accelerated inflationary spiral is just around the corner because the Fed and Congress would rather risk inflation than impose austerity measures to quell the debt which would keep unemployment high and risk social unrest.

cracked dollar1 Is High Inflation Just Around the Corner?Inflation’s already on the radar screens. Last week it was announced that the Federal government has increased annual retirement account contributions from $16,500 to $17,000 because of increasing inflation. Social security checks have also been increased by 3½ percent for the same reason – inflation, and the U.S. Agriculture Department said this week it expects retail food prices to increase by 3½ to 4½ percent this year. This is something we haven’t had to deal with for many years, and the last time it was here in a big way, during the 1970s, the inflation rate reached nearly 14 percent. Some economists believe it will be much higher this time around!

During the inflationary spiral of the 1970s rare coins performed as an outstanding inflation hedge, outperforming the inflation rate by multiples. Indications are that we’re just at the beginning of a new inflationary period. Rare coins have a very efficient market and will likely outperform a great many other investments during the next inflationary spiral. You might want to get in ahead of the crowd. When inflation took off during the 1970s we experienced a runaway market for rare coins.

To give you an historic look at what took place, below is a random sampling of bid/ask prices for “type coins” from The Coin Dealer Newsletter, the primary dealer-to-dealer price guide used at that time, which is still in use today. It’s a sort of “Wall Street Journal” for coins. The Greysheet, as it’s also known, is a wholesale price guide used for trading between coin dealers. All the dealers use it. Prices listed below are from the October 28, 1977 issue, when the coin market just began to trend upward for the following coin examples, and the April 18, 1980 issue, when the coin market peaked.

I’ve also included today’s prices for a comparison. The results are shocking! Bid/Ask prices listed are for Mint State 65 type coins, which were considered “investment grade” rare coins at the time. “Type coins” represent the most common date issues for each design type in each denomination. This is not a complete list of design types, just random samples.

10/28/1977 4/18/1980 10/28/2011
Flying Eagle Cents $450/500 $1300/1450 $2850/3150
Indian Cents, Copper-Nickel $42/47.50 $360/400 $850/925
Two Cents $270/300 $700/785 $1350/1475
Three-Cent Pieces – Nickel $135/150 $1200/1350 $450/500
Three-Cent Pieces – Silver (Type I) $280/310 $2600/2875 $655/715
Shield Nickels $170/190 $1600/1775 $525/575
Liberty Head Nickels $90/100 $1150/1275 $385/415
Half Dimes – Flowing Hair – 1794-95 $7750/NA $27,500/NA $35,000/38,000
Half Dimes – Draped Bust Lg. Eagle $8250/NA $31,500/NA $33,700/36,700
Capped Bust Half Dimes $510/560 $4000/4500 $2250/2450
Seated Liberty Half Dimes – Stars obv $370/410 $3500/3900 $750/815
Seated Liberty Half Dimes – Legend obv $235/260 $2350/2600 $630/700
Draped Bust Dimes – Sm. Eagle $7500/NA $30,000/NA $75,000/82,500
Draped Bust Dimes – Lg. Eagle $4750/5200 $20,000/NA $35,000/38,000
Capped Bust Dimes – Reduced size $1100/1250 $5000/5600 $6500/7000
Seated Liberty Dimes – Stars obverse $585/640 $4400/4900 $1850/2050
Seated Liberty Dimes – Legend obverse $225/250 $2500/2775 $700/755
Barber Dimes $135/150 $1750/1925 $510/550
Twenty-Cent Pieces $950/1050 $7500/8300 $4000/4350
Draped Bust Quarters – Sm. Eagle $17,500/NA $50,000/NA $275K/295K
Draped Bust Quarters – Lg. Eagle $6250/NA $22,500/NA $75,000/82,000
Capped Bust Quarters – Large size $3000/3350 $9000/10,000 $23,000/25,000
Capped Bust Quarters – Reduced size $1700/1875 $6750/7500 $18,500/20,000
Seated Liberty Quarters – No motto $2000/2300 $5500/6100 $2650/2875
Seated Liberty Quarters – With motto $410/450 $4700/5200 $1575/1725
Barber Quarters $270/300 $2500/2775 $935/1025
Standing Lib Quarters – Type I, Full Head $285/315 $1900/2100 $570/625
Standing Lib Quarters – Type II $110/125 $850/950 $400/435
Standing Liberty $240/265 $1800/2000 $650/700
Flowing Hair Half Dollars – 1794-1795 $9350/NA $55,000/NA $450K/500K
Draped Bust Half Dollars – 1801-1807 $6750/NA $24,000/NA $65,000/70,000
Capped Bust Half Dollars – Let Edge $625/700 $3150/3500 $8000/8800
Capped Bust Half Dollars – Reeded Edge $1250/1400 $6500/7200 $14,500/15,750
Seated Liberty Half Dollars – No motto $575/635 $6000/6750 $4500/4850
Seated Liberty Half Dollars – With motto $460/510 $5500/6100 $3450/3750
Barber Half Dollars $525/575 $5000/5600 $2600/2775
Draped Bust Silver Dollars – Sm. Eagle $17,000/NA $60,000/NA $335K/365K
Draped Bust Silver Dollars – Lg. Eagle $11,500/NA $30,000/NA $200K/220K
Seated Liberty Silver Dollars – No motto $800/875 $4000/4500 $47,000/51,000
Seated Liberty Silver Dollars – With motto $950/1050 $5000/5650 $56,000/61,000
Trade Dollars $675/750 $5250/5800 $9750/10,750

 

This is an eye-opening look at what’s happened to prices for specific coins during the past three decades! We see that the inflationary spiral of the 1970s drove prices sky high. This was the result of an investor-driven market. After the market peaked, it took many years for the market to go through its shakeout from the investor influence and return to a collector-driven market. Some coin prices took it on the chin pretty hard and still haven’t come back to the levels they were driven to during the late 1970s. This shows how much potential is there for those coins to return to their previous heights.

Additionally, what’s not taken into account is the low inflation rate we’ve experienced during all those years. With that taken into consideration, the current prices would be valued at a lower factor than what is seen in this chart. The higher prices show where collector/investor demand has been focused – on the earliest coins produced by the U.S. Mint. We also see a preference for the largest size coins and denominations.

There are other factors that should also be considered. For example, during the late 1970s MS 65 was the favored investment grade. Today, with third-party coin grading and encapsulation, the market has a preference toward MS 66 and MS 67, or even higher grades in the rare occasions when vintage coins are graded higher than 67. We now also have the Population Report by PCGS and the Census Report by NGC that, while not perfect because of crack-outs, give us a much more accurate estimate of how many of these coins exist.

Obviously, as we see on the chart, many coins have actually decreased in value since the 1980 peak. This is a reflection of their commonality and level of demand, in comparison to the early U.S. coins, but especially the investor influence of the 1970s. Here’s where the largest potential resides for collector/investors today.

It’s important to keep in mind that times were much different for the coin market during those heady days of the 1970s. There were no third-party grading services which encapsulated coins. There were dealer-to-dealer trading networks, but no Internet trading or Internet auctions, and coin prices were just breaking out of low collector-based price levels and were propelled into an investor-driven coin market. Today’s collector/investor is much more sophisticated and has the great power of the Internet as a resource to learn from and trade. Prices are at a much higher starting point at the beginning of this new period of inflationary growth, so hopefully the market should be more stable this time around.

While the current inflationary spiral gains steam it’s possible that virtually the whole coin market will be carried with it to higher price levels. But there could be some coins that may also fall in price. Not just any old coin will appreciate. Therefore, it’s important to try to figure out what the market will be like as it heats up and who will be buying what coins at that time. It will be very important to carefully select the rare coins that you want to invest in and collect. I am planning a column within the next few weeks about how to carefully select the best rare coins to invest in.

mark ferguson Is High Inflation Just Around the Corner?Mark Ferguson was a coin grader for PCGS , a market analyst for Coin Values and has been a coin dealer for more than 40 years. He has written for the ANA, Coin Dealer Newsletter, Coin World, Numismatic News, , Coin Values, The Numismatist and currently has a weekly column on CoinWeek. Mark can be reached at Mark Ferguson Rare Coins ( www.mfrarecoins.com)

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