Prepare Your Portfolio For A Rare-Coin Resurgence
Rare coins have significantly outpaced gold in the past 30 years, particularly during rising inflation. However, rare coins have not done nearly as well as gold in the past 10 years. Why? Simply because rare coins are driven by inflation and prosperity, two conditions that are in very short supply during disinflationary recessions like today’s. But that’s changing.
The traditional safe haven of gold, while also driven by inflation, has boomed in the past decade, despite relatively low inflation, as concerns have grown over sovereign debt, widespread economic uncertainty, and competitive currency devaluations. Gold prices are also driven by growing demand for jewelry in China and India, the rediscovery of gold as both a currency and a monetary asset, and by the Federal Reserve’s quantitative easing and its promise of inflation to come.
Rare coins, on the other hand, have suffered from the broad economic deterioration of the past decade, when some investors could no longer afford to keep their investment collections of rare coins. They have had to sell as the rare-coin market has declined, and that decline also has kept new collectors from entering the market.
However, something interesting has happened. The big money, the patient money, has stayed with rare coins. One of the largest and most prestigious wealth-management companies has added high-quality rare coins to the investments they provide to their clients, even building up a substantial collection in anticipation of the next boom cycle.
Prosperity and inflation will drive that boom. When will they return? Blanchard believes we’re on the edge of an economic recovery led by China, India, and other fast-growing markets. That economic recovery will become an inflationary boom, fueled by the easy money that has been dumped into the global economy by Ben Bernanke and his Fed colleagues. The boom in capital expenditures comes amid sharply rising prices for agricultural goods and industrial commodities such as copper, iron ore, and crude oil.
In the coming year, oil and gas development projects are expected to grow by 12 percent, and the highest mining regions anticipate expenditures to jump more than 50 percent. As resource companies continue to increase their investments, wage and cost inflation and longer lead times will limit the supply response to increased demand, and serve to drive commodity prices even higher.
A recent sharp increase in business lending provides an optimistic sign for the economy and can help to make the recovery self-sustaining. Until very recently, the lack of such lending was seen by economists as a primary obstacle to a healthy recovery. Commercial and industrial lending are the last things that turn in a business cycle.
Factory activity is beginning to grow in Brazil, China, and South Korea. Commodities have raced higher on the accelerating recovery, and increased demand for commodities is also increasing the demand for miners worldwide, causing mining companies to warn that labor shortages could raise costs.
Inflation is becoming an increasing economic and political challenge in developing countries, including China and India, and is starting to become a problem even in developed nations such as the United Kingdom and in the Eurozone.
Gold gained almost 30 percent in 2010, while silver was up 74 percent. Why the disparity? In recent months, concerns about inflation, the European debt crisis, the boom in commodity prices, and the Fed’s moves to boost the economy have driven investors to hard assets. However, the move to silver has also been prompted by its multiple industrial uses, whereas gold has risen primarily as a substitute for devalued currencies. Even as a new round of quantitative easing in the U.S. and talk of currency wars have driven the price of gold to record highs, silver has also benefited from anticipation of strong demand for its industrial uses in the inflationary boom to come.
The global boom in resource spending also points to boom times ahead. The boom in capital expenditures, which extends to oil, natural gas, and agribusinesses, comes amid sharply rising prices for commodities such as copper, iron ore, crude oil, sugar, and wheat.
Producers are paying almost 20 percent more for farm products like dairy, meat, and grains than they were a year ago, yet U.S. consumers are only paying about 1.7 percent more for their groceries than this time last year. The Fed is making noises about its preference for more consumer-price inflation in the U.S. right now. It may not get it today, but it certainly will in the near future.
Now is the time to prepare your portfolio for the economic changes ahead. Remember: It’s not if, but when. By purchasing rare coins now, YOUR PORTFOLIO will be better prepared for tomorrow.
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