Not chump change: rare coins could outperform as investments this year by Ryan Vlastelica
| Published: Jan 31, 2017 4:05 p.m. ET
have a higher correlation with inflation than other asset
collecting isn’t just for nerds anymore.
With inflation expected to rise this year,
and a concurrently strengthening U.S. dollar seen eating
into any gains that might be made by pure gold, investors
may want to consider a niche asset class as a protection
against market turbulence: rare coins.
While such a strategy may seem akin to putting
your money in baseball cards, coins have long been used
as an investment, and one that could be particularly beneficial
in the current economic climate.
“Rare coins deliver a higher annual return
than gold, and they provide an excellent hedge against inflation,”
said David Beahm, chief executive officer of Blanchard and
Company, a rare coin and precious metal investment firm.
“We believe that with President Trump and some of the policies
he’s set forth, that we should see inflation, possibly double-digit
inflation, in the very near future.”
Trump has proposed massive corporate tax
cuts and fiscal stimulus, both of which are expected to
stoke inflation this year. That could increase the appeal
of gold, which has traditionally been viewed as an inflation
Investable coins are defined as ones minted
between the late 1700s and 1933, when gold ceased to be
an ingredient in their construction. Prices are determined
both by their scarcity and their condition, and they’re
scored on a scale of zero to 70, with Blanchard focusing
on the ones graded above 50.
Between 1979 and 2014, the most recent year
for which data is available, coins with a minimum score
of 65 posted an average annual return of 11.9%, according
to a study by Penn State University. That’s near the average
annual return of 13% posted by equities SPX, +0.03% and
more than twice the 5.5% average annual gain of gold bullion
GCZ7, +0.42% Coins with a lower score, between 63 and 65,
had an average annual return of 10.1%.
Coins posted a higher correlation with inflation
than other asset classes, according to the study, with the
relationship about twice as strong as for gold. The correlation
between coins and inflation is 0.58 (perfect correlation
would be 1.0). It’s 0.27 for gold bullion and 0.15 for stocks.
The higher the correlation, the better it works as a hedge.
“The rarity factor builds on the actual
value of the gold, increasing its value,” Beahm said.
He added that the more common rare coins,
such as Morgan dollars, could be had for as little as $20,
while the scarcest ones, including Brasher Doubloons, the
first gold coin minted for the U.S., have sold for more
than $7 million.
“There’s a wide range, so this is really
for everyone,” he said.