Inflation Hedge

For many years there was no relationship between the price of stamps and the price of gold. The value of gold, in currency terms, was fixed by national governments whereas the price of stamps was left to rise and fall with the market. Gold was decoupled from currency in 1971. The next ten years saw a rapid rise in the price of gold due to inflation and pent up demand because of price controls and limited availability of gold. Because stamps also rose rapidly in price during this decade, many philatelists assumed that their stamp holdings had similar inflationary hedge qualities to gold.
The forces driving stamp prices are not the same as those that influence gold. Stamps are not an inflation hedge. They never were. The reasons that stamps went up in tandem with gold in the 1970s had nothing to do with inflation, though that decade saw great inflation. Stamps go up for two reasons: first, and fundamentally, because of real and sustained collector demand. Adam Smith’s invisible hand is the main driver of philatelic prices, with this important modification. Stamps go up in price in times and in countries where there is political and economic instability. When people are concerned about being able to move assets they buy stamps because stamps are among the most portable property there is. (It was British currency controls in the 1970s that started the great run up in stamp prices in that period-and the British Control Acts specifically mentioned diamonds-another tangible asset with a high value to weight ratio-as also controlled as to export. Stamps were not controlled).
The great run up in Chinese stamp prices of the last ten years is largely because of this. Chinese people are unable to move their assets out of their country and, fearing political instability could affect their assets in banks (in actions such as bank freezes and devaluations, which have often happened under the Communist government), many Chinese put a portion of their assets in stamps. As far as United States stamps are concerned,  unless we experience considerable political and economic instability in this country (which no one wants), we will not see large stamp price increases until there is more collector demand.
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