Commodities & Rare Coins Market Update —— April 2016

Estimated Reading Time:

4 minutes 37 seconds

Summary:

Provide update on the economy, commodities, and the rare coins market.


Economy

  • U.S. GDP for the first quarter 2016 came in at 0.5% real growth.
  • ADP Non-farm payroll, which measures jobs figures, continues to weaken from the peak in December of 2015 (287,000 jobs created) to April 2016 (155,000 jobs created).
  • Private wages and salaries rose in April ($37.2 billion increase) compared to March ($27.6 billion increase) while government wages and salaries were down over the same time period (growth of $1.4 billion in April compared to $3.1 billion in March).
  • Consumer spending rose 1% in April, which represents the highest increase not only in 2016, but since the great recession. April also saw disposable income increase by 0.5%.
  • April retail sales rose 1.3%, with expectations of 0.9%. Auto sales increased 3.2% from March, which represented the primary driver of April’s strong results.
  • Excluding auto sales, April retail sales rose 0.8% with higher sales experienced in apparel and restaurants. Declines were seen in both building materials and gardening equipment, the only components to decline.
  • Auto sales through April 2016 show mixed results with passenger car sales down 5.0% year over year, while truck sales are up 10.6% year over year.
  • Industrial production decreased in March 2016 by 0.6%, marking the second month in a row a decrease was observed. Year over year through March 2016, industrial production is down 2.0% .
  • Corporate profits are down an estimated 8.4% year over year.
  • Building permits for the first three months of 2016 were 3,457 compared to 3,195 in 2015. Note however that January to February 2016 saw a decrease in building permits of 2.2% which continued in February through March which decreased by 8.6%. Building permits is tied to future construction spending.
  • The AAII sentiment survey, which surveys the mood of individual investors, ended April as follows:
    • Bullish 27.4% (avg 38.5% since inception of survey in 1987)
    • Neutral 44.0% (avg 31.2% since inception of survey in 1987)
    • Bearish 28.6% (avg 30.3% since inception of survey in 1987)

Commodities

  • Gold remained strong in April as the dollar weakened and the market’s belief of further Federal Reserve tightening in the near term remote.
  • Gold
    • $1,285.65 spot price April 30, 2016
    • $1,285.65 April high
    • $1,213.60 April low

Gold-Chart-4.2016

 

  • Silver
    • $17.85 spot price April 30, 2016
    • $17.85 April high
    • $14.96 April low

Silver-Chart-4.2016

 

  • Gold & Silver current price in relation to historical prices

Historical-Prices-4.2016

* Represents how many ounces of silver 1 oz of gold is worth

Rare Coins Market¹

I’m sure the majority of those reading this have heard the saying, ‘Buy low, sell high’, when it comes to investing in the stock market. Seems so simple right?! Just buy low, sell high and were on our way to riches. While that theory makes sense and would prove to be successful, the difficulty is in its implementation. How does one know when a stock or commodity is ‘low’ and to buy? And on the flip side, how does an investor or seller know when something is on the ‘high’ side and to sell? Unfortunately, too many let their emotions drive their decisions and end up on the wrong side of this very simple equation.

I’m no prognosticator of the value of rare coins, commodities, or stocks. If I were, my type set would have already been ranked #1 as the All Time Finest. Instead, I take the common ‘Buy low, sell high’ equation and apply it by analyzing current prices of assets to historical averages. That enables me to easily see if an asset class, such as rare coins, is currently priced above its historical averages, at its historical averages, or below its historical averages. With this data in hand, I can then be a better informed buyer, buying an asset class when it is below its historical averages, and selling when it is above its historical averages. Will this always work? Absolutely not. However, implementing such a strategy will provide you with a much better chance of acquiring coins at decent prices and realizing above-average returns over the long-run. Keep in mind that there are many factors a collector or investor must evaluate prior to acquiring a coveted rare coin. Valuation is one of the many considerations.

The U.S. Rare Coins Index is a price index used to track the performance of the underlying coins which comprise the index. As the values of the individual coins comprising the index move, it moves the index as a whole. The index is comprised of 87 U.S. coins. Such an index enables us to track the performance of rare coins over time. As you can see from the table below, while the U.S. Rare Coins Index has not performed as well in 2016 when compared to both gold and silver, it has slightly outperformed the S&P 500.

Historical-Performance-4.2016

 

In analyzing the valuation of the U.S. Rare Coins Index, we look at the indexes average multiple using January 2000 as the baseline year. At the end of April 2016, the multiple was 4.3, indicating that, on average, the 87 coins comprising the index cost 4.3 times as much when compared to January 2000. Analyzing such multiples can be valuable in determining whether current market conditions favor buyers of rare coins, or sellers. Historical information as of April 2016 can be seen in the table below.

Rare-Coin-Index-Valuation-4.2016


1 – Special thanks to the team over at U.S. Coin Values Advisor for maintaining the U.S. Rare Coins Index. For additional details regarding the underlying coins comprising the index, please visit them by clicking here.

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