Coin Values vs. Inflation - The Real Relationship

Many collectors get confused about how inflation affects the value of coins. Itis easy to get lost in all the economic theories and information that inevitablypermeate the market during periods of economic uncertainty. While this issue iscertainly not one that can be easily simplified, a few principles can help collectorsunderstand how inflation and coin value interact.

    ### Factors that Impact the Price of a Coin ###

The majority of collectors understand that the quality of a coin greatly influencesits price. Thus, numismatists have developed a sophisticated system for gradingcoins. In addition to gaining familiarity with the coin grading system, coin collectorsand investors should remember other aspects that can impact a coin’s value:

            * The price of coins depends on the cost of precious metals. The value of a coin

can fluctuate over time, based on the price of the metal from which it is minted.However, metal price is only one factor that determines the price of a coin. Certaincoins tend to sell very close to the price of the metal. These low premium coinsare usually popular among those individuals who are looking to diversify their portfolioas opposed to collecting as a hobby. * A coin’s desirability greatly impacts its price. If a coin is rare, minted withexceptional quality, or particularly popular, its price will generally rise dueto increased demand. Coins such as the Perth Mint’s Lunar Series are popularamong collectors and tend to have a higher premium, because their value is increasedby desirability. * People’s income impacts their purchasing power. During times of inflations, people’sincome generally rises, as does the cost of most goods and services. The price ofcoins generally remains relatively stable over time, however, so the effect of inflationdoes not always directly impact the coin market. * Some market trends will persist regardless of inflation or other economic conditions.In the 1970’s the value of many previously popular coins declined, despite inflation,and never recovered value. Meanwhile the values of the 1913 nickel and the 1804dollar have soundly outpaced inflation, because the rarity and quality of thesecoins remain extremely high. * It can be difficult to guess which coins’ values will exceed inflation and becomeoutstanding investments. Coin buyers who purchase coins solely for the purpose ofreselling them later are taking a significant risk, because predicting what coinenthusiasts will desire in the future is a dubious endeavor. That’s why buying gold remains popular among investors: the costhas risen steadily over the long term, independent of coin collectors’ changingtastes and economic variables.

Ultimately, inflation is merely one of many factors that affect the fluctuationsin coin prices. To maximize the value of coins over time, coin collectors shouldkeep these variables in mind, rather than blindly choosing coins based on potentialvalue.

Research Coin Dealer Ratings from the National Inflation Association. GainesvilleCoins was the only coin dealer to attain the highest rating, 5 stars, from the NIA.

            *This information is provided for general reference purposes and does not constitute

professional advice. For detailed coin collecting or investing information, pleaseconsult with a professional expert.*