Commodities & Rare Coins Market Update —— June 2016

Estimated Reading Time:

4 minutes 39 seconds

Summary:

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


Economy

  • GDP figures for the second quarter are expected to come in around 2.4%, with overall economic activity continuing to decelerate modestly. Recession signals have begun to emerge, but they are just that, signals.
  • In their June meeting, The Fed did not change rates. The target federal funds rate remains at 0.25% to 0.50%. The Fed reiterated that it “expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate.” However inflation is starting to pick up which will put pressure on the Fed to raise rates sooner rather than later.
  • The Fed revised their forecast for 2016 GDP growth downward to 2.0% from 2.2%. The downward revision was due primarily to slow job growth and business investment remaining soft.
  • Globally, interest rates went to new lows as central banks continued to buy up more assets. Through June, we have also not had any rate increases despite the Fed’s promise that 4 could be expected during 2016. Rates on the 10 year treasury hit levels not seen since 2012 at the height of the Greek credit crisis. High yield bonds remained relatively strong on the back of decent oil prices, despite defaults continuing to stack up at the fastest pace since 2009.
  • Brexit became a reality as the British voted to leave the European Union. The fallout (i.e. panic and overreaction) in the U.S. was two days of negative market reaction. This is a perfect example to not overreact when such events occur as those losses were quickly reversed and the month ended basically flat on most of the major indexes.
  • Economic figures for June came in fairly strong, despite the result of the Brexit vote. The ISM Purchasing Managers Index rose to the highest level since this time last year. The non- manufacturing index also surged to the strongest reading of the year. Construction spending remains solid while retail sales have been strong.
  • Housing starts rose 4.8% in June leading to an annualized rate of 1.189 million starts. Building permits were up 1.5%. Overall, we saw an improvement in housing during the second quarter of 0.8% over the first quarter. While multi-family homes represents a much smaller segment of housing, it has no doubt played a role in the stronger second quarter. Multi-family homes experienced a 5.4% increase in starts and a 2.5% increase in permits, compared to single-family home starts which rose by 4.4% and permits only up 1.0%.
  • Existing home sales were up 1.1% in June, leading to an annualized rate of 5.570 million sales. Single-family sales rose 0.8% month over month and 3.1% year over year. Condos were up 3.2% month over month and 1.6% year over year. Year over year the combined rate stands at 3.0%. Pricing also rose to a 4.7% gain year over year, which is partially due to levels of supply. For the month, supply fell 0.9%. Overall, the housing sector continues to appear healthy.
  • The valuations of U.S. stocks compared to the rest of the world are near record highs. The quarter will be coming to an end this month and with it, earnings reports. These reports will give the market some indication of whether the corporate profit recession will continue.
  • The AAII sentiment survey, which surveys the mood of individual investors, ended June as follows:
    • Bullish 28.9% (17.8% May, 38.5% avg since inception of survey in 1987)
    • Neutral 37.7% (52.9% May, 31.2% avg since inception of survey in 1987)
    • Bearish 33.4% (29.3% May, 30.3% avg since inception of survey in 1987)

Commodities

  • Despite the stronger dollar, gold surged in June on the back of fear surrounding the Brexit vote. Many believe that it appears stretched at this point which means we could see a retrace of the recent gains.
  • Gold
    • $1,320.75 spot price June 30, 2016
    • $1,324.55 June high
    • $1,212.40 June low

gold-chart-6.16

  • Silver
    • $18.36 spot price June 30, 2016
    • $18.36 June high
    • $15.95 June low

silver-chart-6.16

  • Gold & Silver current price in relation to historical prices

avg-hist-prices-6.16

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

Rare Coins Market¹

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, the U.S. Rare Coins Index is slightly lagging the S&P 500 year to date and significantly underperforming gold and silver, which are more volatile than the U.S. Rare Coins Index.

hist-price-performance-6.16

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 June 2016, the multiple was 4.4, indicating that, on average, the 87 coins comprising the index cost 4.4 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. Right now we are near the historical highs of 4.5. Historical information as of June 2016 can be seen in the table below.

rare-coin-valuation-6.16

 


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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