Coin Values vs. Inflation - The Real Relationship

Tuesday, December 15, 2009

Many collectors get confused about how inflation affects the value of coins. It is easy to get lost in all the economic theories and information that inevitably permeate the market during periods of economic uncertainty. While this issue is certainly not one that can be easily simplified, a few principles can help collectors understand how inflation and coin value interact.

Factors that Impact the Price of a Coin

The majority of collectors understand that the quality of a coin greatly influences its price. Thus, numismatists have developed a sophisticated system for grading coins. In addition to gaining familiarity with the coin grading system, coin collectors and investors should remember other aspects that can impact a coin’s value:

• The price of coins depends on the cost of precious metals. The value of a coin can fluctuate over time, based on the price of the metal from which it is minted. However, metal price is only one factor that determines the price of a coin. Certain coins tend to sell very close to the price of the metal. These low premium coins are usually popular among those individuals who are looking to diversify their portfolio as opposed to collecting as a hobby.
• A coin’s desirability greatly impacts its price. If a coin is rare, minted with exceptional quality, or particularly popular, its price will generally rise due to increased demand. Coins such as the Perth Mint’s Lunar Series are popular among collectors and tend to have a higher premium, because their value is increased by desirability.
• People’s income impacts their purchasing power. During times of inflations, people’s income generally rises, as does the cost of most goods and services. The price of coins generally remains relatively stable over time, however, so the effect of inflation does not always directly impact the coin market.
• Some market trends will persist regardless of inflation or other economic conditions. In the 1970’s the value of many previously popular coins declined, despite inflation, and never recovered value. Meanwhile the values of the 1913 nickel and the 1804 dollar have soundly outpaced inflation, because the rarity and quality of these coins remain extremely high.
• It can be difficult to guess which coins’ values will exceed inflation and become outstanding investments. Coin buyers who purchase coins solely for the purpose of reselling them later are taking a significant risk, because predicting what coin enthusiasts will desire in the future is a dubious endeavor. That’s why buying gold remains popular among investors: the cost has risen steadily over the long term, independent of coin collectors’ changing tastes and economic variables.

Ultimately, inflation is merely one of many factors that affect the fluctuations in coin prices. To maximize the value of coins over time, coin collectors should keep these variables in mind, rather than blindly choosing coins based on potential value.

Research Coin Dealer Ratings from the National Inflation Association. Gainesville Coins was the only coin dealer to attain the highest rating, 5 stars, from the NIA.

This information is provided for general reference purposes and does not constitute professional advice. For detailed coin collecting or investing information, please consult with a professional expert.

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