Rare coins better than gold as inflation hedge
Coin and precious metals investment firm Blanchard & Company says Fed's policies have dollar, economy locked into long-term negative cycle while inflation and producer prices will continue to drive tangible assets higher
Posted: Thursday , 17 Jul 2008
NEW ORLEANS -
Economic analysts at Blanchard and Company, America's largest precious metals and rare coin investment firm, say recent statistics regarding rising producer prices and inflationary Federal Reserve practices will continue to negatively impact consumers and that investors seeking a safe haven for their assets should consider rare coins and gold, as history has shown them to generate the greatest returns during times of uncertainty.
"With producer prices rising at the fastest pace in 27 years, Ben Bernanke, Chairman of the Federal Reserve Board, reported that ‘upside risks to the inflation outlook have intensified' in his testimony before the Senate Banking Committee," says Donald W. Doyle, Chairman and CEO of Blanchard and Company. "Inflation is real, and the Fed has its hands tied to some extent in curbing it in any tangible way without hurting consumers more than they already are."
Doyle pointed to a number of statistics that illustrate the current economic downturn is exceptionally bad, with little positive news on the horizon:
- Producer prices rose a seasonally adjusted 1.8 percent in June and soared 9.2 percent from a year ago, the biggest year-over-year increase since 1981, according to the Commerce Department.
- Equally startling, the U.S. Consumer Price Index rose 1.1 percent in June, the biggest monthly rise since June 1982. At the same time, the Purchasing Managers' Index of prices paid by manufacturers shot up to the highest level since 1979, reflecting surging energy costs that may drive prices even higher.
- Prices of goods imported into the United States jumped by 15.4 percent in the twelve months leading up to April, according to the Bureau of Labor Statistics. That year-over-year jump was the biggest since the Index was first published in 1982.
"Does anyone need any more evidence that inflation is upon us?" Doyle asks. "The Commodity Research Bureau Continuing Commodity Index - the CRB Index - made an all-time new record this past week, so it's clear that the bull market in commodities is alive and well."
Doyle says that unrelenting new demand for commodities from China, Brazil and India - economies which continue to surge ahead - will continue to demand all types of commodities required to build everything from basic infrastructure to consumer products.
In addition, Doyle adds that the outlook for the dollar is bleak, noting that while the U.S. currency has been trading in a narrow band against the euro since April, it fell to a new all-time low this week, even though European economies show clear signs of faltering themselves.
Since the credit crisis erupted almost a year ago, Doyle says, the Fed has been trying to lower interest rates - exactly the wrong thing to do if inflation is your principal concern - and the latest fall in the dollar further complicates the job of the Federal Reserve as it tries to bolster the economy at the same time that it fights inflation.
"But the Fed has not had much luck in lowering the all-important mortgage rates," Doyle notes. "At the same time that the Fed has cut rates by 325 basis points, private sector borrowing rates, especially mortgage rates, have risen to higher levels than when the crisis began - further undermining the main source of the economic problem, residential real estate."
As investors' concerns about inflation become more acute, they increasingly turn to inflation hedges such as gold. However, some sophisticated investors realize that rare coins have, historically, been a much better hedge against inflation than gold has been - twice as good, in fact.
"The correlation of the return on coins with inflation over the last 29 years is well above that of other assets considered, and nearly two times that of gold; thus, the contention that gold is a better hedge against inflation than rare coins is not supported by the data," writes Raymond E. Lombra, Ph.D., in The Investment Performance of Rare U.S. Coins, an independent study prepared for the Joint Committee on Taxation of the U.S. House and Senate for the period of January 1979 through December 2007.