Return to the old stamping ground: The postage stamp market, depressed for 12 years, is now showing a few faint signs of recovery, says John Windsor

Shares have dropped 10 per cent in a month, house sales are at a 20-year low, manufacturing output is on the slide again, firms predict no recovery until the end of next year - and John Major has been trying to talk the pound out of a nosedive. But after bumping along the bottom for 12 years, the price of postage stamps has shown a small but significant rise.

In the past, people have bought stamps when they fear government policies are about to ruin them. Stamps are 'portable wealth', which can be carried abroad in a wallet with ease. Are Britain's stamp buyers the smart ones, reserving a place aboard the life-raft ahead of the rest of us?

The mythology of stamp collecting suggests that the fortunes of those who speculate in stamps can vary enormously. There was the baker in Berlin, after the First World War, who bought stamps with the wheelbarrow-loads of almost worthless paper currency with which his customers paid for their loaves. He did rather well. The value of the mark continued to plummet. His stamps rose in real value.

But the London restaurateur who, in the deepening recession of the late Seventies, turned pounds 30,000 of banknotes into stamps had a nasty shock. The stamp bubble burst in 1979-80. Prices fell to the floor and stayed there.

In both instances, the spur to speculate in stamps was not recession alone but the spectre that sometimes, though not always, accompanies it - inflation. A 100bn mark note had to be issued in Germany in 1924. In Britain in the late Seventies, inflation was heading towards 15 per cent. Stamps were snapped up as a protection.

Today, we have recession but inflation is down to 3.9 per cent and falling. Why, then, an upturn in the stamp market?

First of all, it is only an upturn, and a recent one at that, although auctions are now regularly shifting a healthy 80 per cent of their lots. Christie's Tim Hirsch suggests as an example of price movements the famous and magnificent 1929 British pounds 1 stamp commemorating the Postal Union Congress. A favourite with speculators, mint specimens in good-to-fine condition could be bought at auction for only pounds 143 in 1975; Stanley Gibbons' 1980 catalogue listed it at a sky-high pounds 1,100.

Today, its auction value has perked slightly, to pounds 242, after remaining stable at pounds 220 for the past three years.

The Edwardian pounds 1 green of 1911 (mint, good-fine) shows the same modest but unmistakable upturn: only pounds 137 at auction in 1975, pounds 1,400 at the 1979 peak and pounds 385 today compared with pounds 330 last year.

As for famous early stamps, the Penny Black (the world's first, issued 1840) now costs about pounds 66 for a basic used, good-fine example, its highest price for four years. The pounds 5 orange of 1867, another spectacular example, is more valuable now, at pounds 2,200, than it has been since the boom year of 1979.

On 29 November of that year - four months after the Conservative election victory - the boom blew its top, with frenzied bidding at Sotheby's for the 'Vaduz' single-owner collection of Great Britain and Empire stamps. The collection was strong on clean high values, short on postal history - a speculator's delight.

Stanley Gibbons had cautiously restrained its catalogue prices as the boom gathered pace, but its 1980 catalogue, already available at the time of the Vaduz sale, had thrown caution to the winds, predicting even steeper price rises. As a result, bidding was further inflamed, with Gibbons itself behaving as bullishly as the rest. Vaduz was a sell-out, bids topping estimates by around 50 per cent.

But 30 November was hangover day. The trade realised it had blown it. Panicking speculators, whose rocketing bids had left the collectors behind, began to offload their stamps. The market was glutted and prices more than halved.

It has taken until now for the trade to reabsorb collections jettisoned by disappointed speculators. Mr Hirsch notes a shortage of big collections and Richard Watkins, Gibbons's managing director, says: 'There is hardly a glut any more. Good material is hard to come by.'

Shortage of supply has coincided with increased demand, which Mr Watkins first noticed two years ago and which is only now being translated into higher prices. But speculators have not re-entered the market, he says. It is now solidly collector-based. The price rises have been made possible, he says, by a rise in disposable incomes.

The behaviour of collectors' markets is quite different from speculators' markets. Collectors buy what they know and love and tend to hang on to it. Speculators have no knowledge and less love. They are quick in, quick out, depending on whether the price graphs point up or down. New speculators' markets such as stamps emerge when all other investment markets appear to have gone into a dive.

Take the late Seventies: the Labour government, straitjacketed by the IMF, was botching an attempt to reflate the economy. Inflation had become so rampant that the small investor, even with the bank rate at a high 14 per cent, was afraid to leave his money in the bank. But the stock market was flat and so was the property market. Where to put his money? He had no idea how to get into gold bullion, so stamps seemed to be the only accessible gap in the fence - and small investors crowded through it like sheep.

Today, interest rates have fallen to Eighties levels and inflation is retreating, but asset values - property, shares - are still low and confidence in them is at a minimum. So the small investor once again feels fenced in.

This prolonged lack of confidence is making a nonsense of textbook supply-and-demand as market after market is traumatised by speculators. For example, it is a good time to buy property - an increasingly favourable price-income ratio means that houses will soon, in effect, be cheaper than a couple of decades ago (see David Lawson, above). But lingering mistrust since the bottom fell out of the market in 1989 is discouraging house sales. The same kind of burnt-fingers shock has dogged the art world since speculator refugees from the stock market busted it in 1990.

But, after 12 years, the stamp market has thrown off its trauma and prices have perked. It is time to buy.

As for that magnificent pounds 1 Postal Union Congress stamp of 1929 - what is it really worth? The purchasing power of pounds 1 in 1929 was equivalent to pounds 30.19 now. So today's pounds 232 at auction looks attractive. Even if put on deposit in the bank in 1929, that pounds 1 would still be worth only pounds 12.19 today. And the stamp can be safely tipped to rise in value to pounds 500 within five years - unless speculators force it to boom-and-bust.

Christie's net sale of 'GB', on 16 September, features specimen stamps collected by Dr Conrad Latto.

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