Has the value of Coins and Gold kept up with Inflation?
GOLDSAINT
Posts: 2,148 ✭
It appears from a recent research article by Barry Downs, some of which is below, that the price of Gold has kept up well with the inflation rate over the last 90 years. According to his research there was little or no inflation in the U.S. economy until the creation of the Federal Reserve. Also according to his research five one-ounce $20 gold pieces spent on $100 worth of goods would cost $1,840 today. Dividing $1,840 by five ounces of gold would give you a price for gold today of $368 and it is a little over that.
So how has the price of numismatic coins done over the last ninety years?
Barry Downs,
“A long time ago the store-of-value aspect of money was taken seriously by world governments and economists. The era coincided with a gold standard begun in 1717 by the British; in 1785 the Americans adopted a bi-metallic standard of silver and gold. In 1900, the US switched entirely to a gold standard. With the dollar tied to gold there was virtually no inflation from 1785 to the formation of the Federal Reserve System in 1913.
Debasement of the dollar during the 90 years of Federal Reserve management is recorded for the world to see. Goods and services obtained in 1913 for $100 would cost $1,840 today, and the loss of the dollar’s purchasing power goes on unabated.”
Barry Downs is a stockbroker with Aegis Capital Corporation. He has over 30 years of Wall Street experience, specializing in gold mining stocks and the monetary economics of gold.
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Comments
Did just a little better than gold...
<< <i>Also according to his research five one-ounce $20 gold pieces spent on $100 worth of goods would cost $1,840 today. Dividing $1,840 by five ounces of gold would give you a price for gold today of $368 and it is a little over that. >>
Double Eagles do not contain an ounce of gold.
Russ, NCNE
In 2004, 30 double eagles would purchase a new basic Ford,and one double eagle would purchase a new suit.
Using that comparison, it's easy to see how much the government has ripped off the people who are in general too ignorant to even know realize it.
"If a nation expects to be ignorant and free ... it expects what never was
and never will be ..." Thomas Jefferson(1816)
Tom
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
Louis
O.K. Russ but I think that .96750 oz. of pure Gold is close enough for our 90 year discussion.
TDN and Mrearygold,
Dont you think it is important here to look at an over all basket of coins?
I think it is to easy for us to pick out a few extremely rare coins to use as an example.
Particularly because only a hand full of collectors could afford these.
Not 90 years but 34 years. Not gold but a random group of coins purchaced in 1970 for $1,000.00
This is great!
I am sure it will not be possible for us to look back the full ninety years but 34 is a good start. WOW I did not realize the market as a whole was down so drastic from 89 and 90.
Look at the increase in the value of this $1,000 in coins today. Over 60 times your money in 34 years, compared to the 18.4 times for inflation.
It is of couse a little of a downer for those that purchased many items in 89 and 90. Who knows what created this spike in the market?
If Barry has 30 years of Wall Street experience in Gold what are his portfolio returns for 10, 20 and 30 year time frames?
The spot price of gold over 30 years. Wow gold was only about $50 a ounce in 1970.
Of course if you were unlucky enough to buy at $600 and hold it until today you would still be down.
Dont you think it is important here to look at an over all basket of coins?
I think it is to easy for us to pick out a few extremely rare coins to use as an example.
Particularly because only a hand full of collectors could afford these. >>
Uh, common twenties were in my comparison
Tom
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
It also appears from the charts that Placid posted that the price of Gold over reacted to the hype of inflation in the late 70’s, but corrected to a true relationship, and is currently valued near where it should be, according to Mr. Downs’s recent report.
On the other hand the price of coins is way in front of the inflation increases, so something else must be driving this market, and it is something that all collectors need to know to avoid making the buying mistakes of the past.
In reading through the threads just posted below, several factors can be contributing to these very large increases in the coin market at this time.
First the big money has nowhere to go. The stock market is in the toilet and headed back south, bonds, CD’S, money markets, are not even keeping up with the current inflation.
Real-Estate has been hitting highs every year for several years, and may be reaching its peak, Gold and Silver seem to be fully priced until the new waves of printed money hit the market and inflation is recalculated.
Second it appears from the flips taking place that several of the larger dealers are know making investment predictions and touting coins as short term investments to their wealthy clients. It seems obvious that many of the high-end purchases are NOT done by collectors, but by speculators seeking profits. Collectors buying high R factor coins do not sell them after a year.
In addition I might add this, if you read through the posts on the market crash of the 90’s, and be sure to read all of Mike Sherman’s post who is a V.P. at PCGS, you will see that drastic market swings affect all boats. So if you are a smaller collector you will also be affected.
If you look at the charts that Placid posted you can see that current Gold prices are up approx. 19 times in ninety years, but our basket of coins is up over 60 times in the past 34 years.
So here is the question, what is driving this market? Is it just pure speculation?
ANR SALE
http://forums.collectors.com/messageview.cfm?catid=26&threadid=307844
MARKET CRASH OF THE 90’S
http://forums.collectors.com/messageview.cfm?catid=26&threadid=307779
“So here is the question, what is driving this market? Is it just pure speculation?”
Honestly, it also seems to me that there are a great many rare coins being bought for just pure quick profit reasons. As I have read through many of the show and auction posts over the last few months there are dozens of examples sited.
As far as your last question, I really have no idea, but I do agree that it is very important to know when a bubble is being created if you are a serious collector.
GS, I can see that not many dealers have replied to your post, and perhaps you are asking questions that they do not want answered. I think it is very strange that the Gold Bugs here, like Roadrunner, have not jumped into this post defending their positions.
Again to be honest my readings over the last year have lead me to believe that Gold was undervalued, but I can see by your numbers it may not be.
I bought my circulated '09S VDB in the early sixties for $160, maybe worth $700 today. I was lucky as it was real (I also bought a fake at the same time).
If you apply the rule of 7s (money doubles every 7 years at 7%), I should have doubled 7 times, so it should be worth 256 times what I paid not a measely 4-5 times as much.
While the gain looks impressive at first blush, in actuality it sucks!!
Major,
First Sir let me say that the old rule of 7 has been out the window for 20 years. This theory was developed at a time in our history along with PE ratios etc. that no longer compute to new economics, government intervention etc.
If you calculate the average bank interest rates for every year over the last 40 years you will find that your average will in no way approach 7%
Second let me say that your numbers are most likely incorrect as to your rate of return on your coin. Comparing retail to retail an XF 1909 s VDB in 1961 was $67, today in CW/CV it is $1,100 or 16.4 times in 43 years. So this coin has more than kept up with the inflation in our economy.
A better, but admittedly unique, example would be that "Hot" 50D nickel that sold for $25 40 years ago and can be had for less than that today.
Also, don't forget to note that you will take a 20-30% "haircut" when it comes time to sell, and you willl see why I say that coins as an invesment smell!
What I've been since 1971 is a coin bug. Pure and simple. I'd be buying all rare coins right now if I felt the pricing was comfortable, which I don't feel is the case in many instances.
I diversified into gold in 2002 because I felt it was imperative to have 5-15% of one's holdings in real liquid tangible assets. At that time the derivatives markets were around $100 Trillion. I think now they are well over $200 Trillion. Gold is emergency money. Rare coins don't quite qualify. However XF-MS64 $20 Saints are close enough to bullion to get that effect. True to my coin bug nature I don't have much in gold bullion...I love coins too much. Saints offer a compromise and still offer the leverage if coin prices go up.
The value of coins, at least high quality ones have more than kept up with inflation. Please see the article I posted on the open forum that appeared last night concerning Greenspan's concurrence of the need for a gold standard in 1967. Funny that we came off of it for good in 1971 and Alan no longer publically states anything remotely close to that ideal. I'll bet in secret, he has a stake in PM's of some sort.
Had of any of us bought uncirculated coins from the banks in 1913, or any year following that into the 1940's or 1950's you would have done far better than the rate of inflation. How about bags of Morgans in the 1960's or the GSA dollar sales in the 1970's? Real base collector coins like circ wheat cents haven't quite done as well, nor have circ Lincolns (my VF 1924d cent is still worth the same as it was in 1964 - $24). But quality coins, bought at the right times (market bottoms) have done very well. If you select market periods from peaks to troughs for analysis, then coins, stocks, etc. look pretty dismal. High grade and rare/key date coins have kept up and more than exceeded inflation. Gem BU barber quarters were $135-175 when I got my first one in the mid-70's. They are $1200 today. They've kept up. Not so for an MS60 specimen. The money that pushed up high quality coins over the past 90 years was specifically looing to do that. They were not after 24d Lincolns in VF or circ wheat pennies or 1964 proof sets. They will continue to chase the high end of the circ market (1797 halves, pre-1808 bust) and choice/gem Unc/PF market (bust, Barber, seated, 20th century
key dates, and completeable sets in high grades).
Coins have done better than gold. Gold is not as much fun as rare coins and it's hard to get pleasure staring at a hunk of gold or a paper gold share. While both markets are manipulated, the gold market is messed with every day. At least coins follow a much slower manipulation curve, and it is decidedly up until the fat lady sings. Gold has many more corrections on its way to a top. Coins cover all bases and because of the small size of the market and lack of regulation, it is ripe for speculation and abuse. It occurred in 1978-1980, 1988-90, and it is occurring now in 2004-??. As this market ages more and more speculators will be drawn in, and more collectors will take a seat on the side lines. We cannot keep the speculators out no matter what. The smell of easy $$ and lack of alternatives in equities draws them in. They will always be a part of our market cycles though this time the effect may be smaller than witnessed during the last 2 market manias. But they will have a big effect regardless. In his or her own way, many of us here is a speculator, and buys and sells accordingly. Count me in. There is too much at stake to do otherwise imo.
Of course I agree that gold is ridiculously under-valued compared to stocks as a whole using the 20th century for comparison. Whether a rebalance occurs remains to be seen. But historically there is no doubt that the ratio is out of whack. Gold should be in the $600+ range right now just to rebalance things. However it is artificially depressed by the central bankers, the JP Morgan Chases & Goldman Sachs, and of course or own FED/treasury. The banks have a tremendous short position on gold. They don't want to lose that. Those same banks are probably taking it in the shorts on selling other commodities short too. Read that Greenspan article I mentioned. The govt has been slowly confiscating our wealth for 90 years and redistributing it as they desire. A strong gold price and published high inflation numbers do not support their game. Hence, the need to manipulate and control these markets and numbers because it messes up the fiat money ruse that began in 1913 with the creation of the Federal Ruse. And this fiat money system has been perfectly married into the stock market of 1980-2000. The banks and FED couldn't have been happier Many larger corporations today are a ruse too but until this whole Enron thing unravels over the next 5-10 years, the true affect of corporate accounting has yet to be felt. It's going to get much uglier still. But did stocks kick butt from 1982-2000? Sure? Will every 20 years be as good? Nope. Just look back at 1966-1982 when they stunk. Doesn't seem to make sense that 2002-2020 is the next big upmove for equities and paper assets. I'll stick with coins/gold/silver/oil/natural gas.
roadrunner (coin bug)
at 8% your money doubles every 9 years
at 6% its every 12 years
chart does not account for splits !Stock Chart
“No way an XF sS VDB could be had for $67 in '61”
Major, I don’t know if this coin could be” had” in 1961, but the price I quoted came out of the Red Book for that year.
“In his or her own way, many of us here is a speculator, and buys and sells accordingly. Count me in. There is too much at stake to do otherwise imo.”
“Of course I agree that gold is ridiculously under-valued compared to stocks as a whole using the 20th century for comparison. Whether a rebalance occurs remains to be seen. But historically there is no doubt that the ratio is out of whack. Gold should be in the $600+ range right now just to rebalance things.”
Roadrunner, I see it takes a Lady to draw you out!
First of all I am sure you are right and many people here are speculators, and both buy and sell. The reason I started this thread is that I am a pure collector, and someone else can sell my coins when I am dead! It is not that I am not interested in the investment side, I worked hard for my money, and I am not going to waste it foolishly if I can help it. Being informed is one good way to protect your assets. I for one will be on the sidelines the minute I think that this market is moving into the bubble mode, and it is moving in that direction quickly.
As far as gold being under valued, and”should be a $600”. I am beginning to change my opinion on that the more I learn. Gold should be a store of value, a hedge against the money printing presses of the World, and it appears it is doing that. You may be right, with all the new printing going on, perhaps it should be moved up, but as far as comparing it to Stocks, I think that the over priced/ manipulated stock market should move down.
All the classic rarities move in concert with each other and in general seem to just underperform the stock market over long stretches. That tells me that they are generally sold to successful businessmen who's income is derived from market forces.
Certainly coins that are not classic rarities have mixed results. If you buy 'stuff', usually it remains 'stuff' and doesn't perform well. If you are selective and buy great coins for the grade in desirable series, even in a down market you can hold your own and in an up market make some bucks.
Coins are not a good investment for most because it takes skill or luck to choose the right ones that will perform well through different markets. If you don't have that and are worried about your funds growing, your money is best put elsewhere. As for me, I put most of my disposable income into coins. I love numismatics and believe that a well formed collection is a great mix of pleasure and profit.
And similarly, the underpriced and manipulated gold market should move up.
I'll be heading to the exits with you Goldsaint when the manipulation of the coin market gets too ridiculous.
We've had 4 successive months of lowering foreign investment so the printing presses have been geared up the last 6 weeks. Now up to about $2 billion a week. Something has to keep monetizing our newly acquired debt. If the Asians won't do it, the treasury will.
roadrunner
Hey my friend lets keep in touch on that, we have one big benefit here with this forum that the guys did not have in 90.
“All the classic rarities move in concert with each other and in general seem to just underperform the stock market over long stretches.”
TDN,
From 1980 until 1989 I was president of a merger company in Texas, that specialized in putting public companies together for medium size business people. During those years I had a look a Wall Street that few ever see and, I will most likely never buy a share of stock in an American public company.
90% plus of the people that invest in the stock market do very poorly.
This game is totally rigged. Companies create paper shares out of nothing, the DOW average is constantly changed to reflect only winners i.e. they add and eliminate companies so that only winners are reflected long term in the averages. Here is an example, if you bought 5 coins held them ten years and made the following profits:
Coin A Profit at sale in percent 20%
Coin B Profit at sale in percent 27%
Coin C Profit at sale in percent 30%
Coin D Profit at sale in percent 9%
Coin E Profit at sale in percent 2%
Your average would be 17.6%
But if you eliminate the last 2 poor producers and replace them with better producers then the averages change completely. This is basically what happens to all the numbers in the DOW. As companies do poorly i.e. Enron, or the buggy whip companies, they are de-listed and replaced by the very best winners. If the economy is bad for even winners the market goes down, but the “long Term Numbers always look good.
The people that make nearly all of the real profits from the stock market are, Brokers, corporate insiders including long term employees, sophisticated traders, and Gamblers that just get lucky.
It appears to me that the coin market is doing very well in the investment arena long term, but one must be very careful to not get whipsawed in a speculative circus like the 90’s market.
And don't forget than inflation is part of the losing equation. Gold was $20/ounce in 1913. The value of the dollar today is about 5% of the 1913 dollar (factor of 18). Gold is just about at the same point: 18-19X higher. The net gain on gold was 0 percent in 1913 dollars....it kept pace with the posted rate of inflation.
The key to doing well in coins is buying the right coins at the troughs.
That simple axiom will place you in the rare minority and will have netted you some very nice gains over the past 35 years. I concur with TDN on this one, especially in the current economy.
roadrunner
RR it is contrarian only from inside experience. This is not a good time to tell some of my stories, perhaps in another thread. At any rate the statute of limitations have run out on the guys I use to visit at Bear Sterns in N.Y.
”The net gain on gold was 0 percent in 1913 dollars....it kept pace with the posted rate of inflation.”
I agree with that and with your statement about buying coins in the troughs, but as I said, my main concern is not to make a huge profit, but not to get ripped.
I was totally out of the 90’s market, thank goodness, but I can’t imagine what it was like getting your information about a collapsing market via drums Ha ha.
So now we are down to a little tighter question, are we out of the trough with our basket?
If not at what point will we be?
If this CU index were to go to 80,000 by the end of the year should we get out of the way?
Put another way if everyone would have had all the tools, and communications, we have today, at what point would most collectors and many dealers have said, this is just nuts and I am stepping away from this market.
I know that some out there think that they can just cherry pick great deals, but it appears from the 90’s market that when the blood letting finally comes even the cherries fall off the trees.
Looks to me like the market is in the middle of one huge dead cat bounce....
Looks to me like the market is in the middle of one huge dead cat bounce....
TDN, absolutely, if everyone would just invest in what they work at every day there would be alot less disapointed people.
O.K. I give up, what is the huge dead cat bounce?
I tried that with my own company and took it in the shorts when we went CH 11. Even though our core business was sound, it was the peripheral businesses that had huge hidden liabilities that took us down. We only have one core business now after we emerged from CH 11 but it doesn't help my 401K any.
Nothing wrong with making a good profit in the coin field while having fun doing it. The right coins will do that for you. It's not hard to realize when it's time to back away from buying and when to start selling off. You get a bad feeling in your gut when the market gets like that if you are a collector at heart. Anything you are not 100% sure about owning should get tossed out as things continue to heat up. I did most of my tossing out of the junk back in 2002.
roadrunner
advances are rarely, if ever, straight line. While a parcel of land may have the proper location,
location, and location to be a stellar performer it will still tend to jump in price only after a devel-
oper desires it or some improvements are made to adjacent property. Until this time its price in-
cease is likely to merely reflect the average of all the parcels in the area. In collectibles it's much
worse because the objects collectors desire move in and out of fashion in mostly unpredictable
ways. While a classic rarity is likely to always be in demand most collectibles are not classic rar-
ities and can stagnate indefinitely or can fade in price as collectors' tastes mature or change. As
with the stock market there is a tendency for those who track the coin market to pick the winners
to gauge the market. While gold may appear to be a great inflation hedge now a mere 25 years
after a massive run-up, if one looks at a 500 year chart on gold it appears to be a loser. It does
have dramatic ups and downs and these do coincide with inflation and deflation but over the long
haul it does not look like a good bet. (yes, it may well do quite well for the next decade)
There have been few times in world history that even financial instruments have been stable for
a protracted period. But collectibles, consumer products, and real assets have never enjoyed
much stability.
In my humble opinion, coin prices are effected by several factors: condition, scarcity, the change is the number of collectors and the intrinsic value of the coin's metal.
Bill
To decide the fate of the next 20 years of the stock and gold markets based on the past 20 years is sheer folly. Why would you think we will have 20 more years of the same? Can you find a 40 year period in the 20th century where stocks were up and gold down? One of the problem with today's views is that most everyone has forgotten what occurred prior to the last 20 years.
Our baby boomer generation has somehow concluded that we are going to have another 20 years of continued stock growth so that we can retire in luxury. Nevermind that we are currently in debt up to our ears (both personally and as a country). But we can continue inflating our dollar for another 20 years and allow the other countries to carry us along like they did in the 80's and 90's. Hey, it's worked for 93 years, why not go for another 20? Every major economic cycle since the creation of fiat money (1913 = federal reserve act) has up long up cycles followed by long down cycles.
Does anyone seriously think we have created a perfect business cycle where increasing debt has no downside, only upside?
We are 4 years into a down cycle. The dead cat has bounced twice already. That cat is going to bounce several more times on the way to new lows.
Cladking, relatively stable prices are a result of the LACK of govt intervention in the markets. The major reasons that financial panics and depressions have occurred is because of fiat money, central banks, and govt interventions. Besides confiscating wealth over the past 91 years, our FED reserve system has been responsible for huge swings in our economic cycles, much of it related to coming off the gold standard and printing money with no limitations.
roadrunner
<< <i>.
Relatively stable prices are a result of the LACK of govt intervention in the markets. The major reasons that financial panics and depressions have occurred is because of fiat money, central banks, and govt interventions. Besides confiscating wealth over the past 91 years, our FED reserve system has been responsible for huge swings in our economic cycles, much of it related to coming off the gold standard and printing money with no limitations.
roadrunner >>
The business cycle has existed since the cities first formed nine thousand years ago. Most
of the commerce during the last 2,500 years was with gold or silver and it had no effect on pre-
venting the nature of things to move in cycles. Indeed while fiat currencies have led to numerous
inflations it is relatively rare that they cause a collapse or a panic. It is more likely for precious
metal money to cause panics because of sudden changes in the supply of the metal or the sudden
perception that supply has changed or stockpiles are depleted.
While government intervention is to be discouraged and has at least a small role in all or most
panics, it is certainly not a necessity for booms or busts.
I would not recommend coins for investment, I think stocks will do much better in the long run. Also I think too many coins are being bought by speculators instead of collectors.
Every person in the country now owes $24,806.15
I put the national debt clock on my website at the end of august last year. At that time, everyone owed app 22,000.00
They are going to collect and spend/steal even more. No doubt about it.
If even if just for the privacy issues, tangibles should be an integral part of everyones stash.
Tom
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
Lest you think that is uncommon, try tracking an entire series' notable coins and see what happened between 1990 and 2004......
My personal feeling is that the Dow will be sideways for the next 5 years or more. I think the coin market has 3-4 years worth of gains left in it for this cycle. So personally I'd rather be in coins than stocks for the time being!
how high would it ? not very !
the Dow just fell below support at 10,000,should see a dead cat bounce to about 10,750,then a slow but steady decline to around 7000 or lower.
was anybody around on black monday ? OCT of 86 or 87, down 500 points to like 800 and trimmed about 30 % off everybodys net worth !
gold is a hedge against inflation and during a major crisis such as a massive earthquake in the US may be the only form of money used.
gold,gold bullion and rare coins may hold theyre value very well over the next 10 years.
Thats my rant and im stickin to it !