Gold or Rare Coins: Which Is the Best Hedge Against Inflation

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Did you see the latest inflation news? The Labor Department just released its revised estimates of the November and December Consumer Price Index (CPI).

Inflation rising arrow graphic with dark blue background

What’s that you may ask? Revised data is kind of like a “do-over” for government economists.

Yet, often times these “revisions” don’t capture the big splashy headlines or coverage on the evening news like the first release. Yet, it’s important to pay attention. Why?

“U.S. monthly consumer prices rose in December instead of falling as previously estimated and data for the prior two months was also revised up,” Reuters reported this week. The CPI climbed 0.1% in December instead of falling 0.1% as reported last month. CPI numbers for November were also revised higher to reveal inflation rising 0.2% instead of 0.1% as previously estimated. In October, the CPI jumped 0.5%, which is also an upward revision from the previously reported 0.4% increase.

Translation: inflation is still rising and it’s worse than the government originally reported.

The new CPI data shows inflation is stubborn and not going away anytime soon. This poses a dilemma for investors today who seek to protect and grow their wealth during inflationary times. With inflation hitting a 40-year high in 2022, it’s worth examining the correlation of inflation to gold, rare coins, and stocks. Let’s dive in.

Digging Deep: Gold and Rare Coin Performance Data

As you invest in precious metals, there are many choices that offer the long-term investor an increased return and hedge against inflation, including gold bullion and rare coins. But which is better?

Drum roll, please. According to new research released in February 2023, rare coins are a better hedge against inflation than gold.

Yes, gold does act as an inflation hedge – and it’s a good one – but it turns out rare coins are even better.

What’s the worst? Stocks.

Here’s the data from a new report “The Investment Performance of Rare U.S. Coins” by Raymond E. Lombra, Ph.D., a professor of economics at Penn State University.

  • From 1979-2022, gold produced an average annual return of 5.6%.
  • Owning rare coins (all types MS65) nearly doubled an investor’s return at a 9.5% annual return over the same 44-year period.
  • The best year percent return for gold stood at 100.2% and 198.8 for rare coins.

Investing tip: When an investor seeks to hedge against inflation, the goal is to find the asset with the highest positive correlation.

Looking at the same 44-year period from 1979-2022, coins revealed the largest highest positive correlation to inflation at .57. Gold revealed a .21 positive correlation and stocks only .10.

Here are the key takeaways:

  1.  Including rare coins in a portfolio can improve investment performance.
  2.  Including both gold and rare coins in a portfolio reduces overall volatility and reduces drawdowns.
  3. Rare coins are the best hedge against inflation. Gold also acts as a good hedge against inflation, while stocks are the worst.

Owning gold bullion is appropriate for all investors, and research shows it deserves a place in your well-diversified portfolio. Adding a rare coin component to your portfolio increases those benefits.

If you are searching for ideas on where to invest during these historic, inflationary times, call Blanchard today. We can help assess your long-term investment goals and give you personalized advice on a strategy to help you meet your financial objectives. We have been helping clients grow and preserve their wealth through diversification into tangible assets since 1975 and we can help you too.

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