Rare Coins Produce Higher Returns Than Gold, Despite Lag

October 9, 2007

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When gold soared to its all-time high in 1979 and 1980, rare coins went up more than twice as much, and continued to go up in 1980 after the price of gold turned down.

In 1982, the price of gold rallied. The following year, even as the price of gold turned down, rare coins went up three times as much as gold had in 1982, and continued to go up in 1984 and 1985.

In 1985, when gold started a rally that took it back over $500 by 1987, rare coins lagged behind, but then rocketed past gold, going up well over 100% even as the price of gold fell from $500 to $360.

From 1990 through 2001, as the price of gold fell steadily, rare coins fell at first, then held their own.

In 2002, gold started its ascent from an average annual price of $271 (in 2001) to where it stands today at over $700. Again, the price of rare coins followed in trace, rising steadily from 2003. However, it has only been in the past few months that rare coins have showed signs of taking off and, once again, exceeding gold’s progress.

Today, the sale of an 1804 $10 Gold Piece, which was just announced on October 4, 2007, may very well be a sign of things to come. The same coin sold for $1 million in 2003, for $2.47 million in 2005, and for $5 million today, an increase of 500% since 2003. Although the overall market has not, to date, performed at that level, there are numerous signs that its once-sluggish pace is now turning into a quickstep.

But rare coins offer more than the periodic windfall profit. They are also an excellent diversification. A recent study, which was originally done for the Joint Committee on Taxation of the House and Senate, showed that U.S. rare coins were a better hedge than gold and produced far better investment returns.

That study, updated through 2006, provides a comparison of the investment performance of gold and rare coins. Conducted by Raymond E. Lombra, Professor of Economics at Penn State, the study served as the investment basis for legislation that was passed by Congress and which provided for the inclusion of gold in Individual Retirement Accounts. The conclusions over the 28-year period covered by the Lombra Report are amazing:

• The average annual return on rare coins was more than 300% greater than the return on gold.
• The return on rare coins in their best year was approximately 100% greater than the return on gold in its best year.
• The return on rare coins in their best three years was approximately 100% greater than the return on gold in its best three years.

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