What Gold & Fine Art Have in Common
The Fine art and gold markets are two markets that today exhibit similar characteristics. For one, they are generally reserved for the super rich. Granted, the mainstream public has considerably more access to the gold market than the fine market – the fine market, after all, is a non-market, unregulated and for the elite of the elite – the true movers of the gold market are those who are buying denominations of the objectively valuable metal well in excess of what the common peasant makes in a lifetime+. Second, both markets are finding considerable buying power enter into them from the east – from countries like China, for example, where purchases of fine art have increased nearly ten times in the last ten years.
The liquidity of the fine art market, considering this new global setting, is about to be tested. Andy Warhol is one of the few artists whose works maintain value over time, and now there will be, in the coming months, a firesale of his works. Indeed, 350 on one day this Fall. In some ways, it is high time for the auction, as eleven of the 20 highest prices ever paid at auction for art have occurred since the 2008 market collapse. In other words, the fine art market, reserved for the super-rich, has not experienced the collapse like the rest of the markets have. Kind of like gold, demand from Ultra High Net Worth Individuals has buoyed the fine art market, and indeed as inequality becomes more marked, like gold, fine art will continue its pseudo-bull market in the contradiction of austere exuberance.
As it is mostly inhabited by people who buy a $120 million art piece merely for the sake of demonstrating they will blow that much on something so potentially illiquid, the art market is booming during the wealth redistribution since the 2008 market collapse when international banks were awarded in excess of $16 trillion. Although fine art is a much smaller market than gold, approximately worth $25 billion, one can be sure that most of the individuals who partake in this shadowy market have their fair share of KRANDS sitting somewhere overseas in a vault.
The market is growing due to pressure by an excited Chinese elite. Ultra High Net Worth Individuals have been able to enter the market since 2003, causing it to run higher than the subprime mortgage market had. During 2008, there was no slowdown for fine art, just like there was not for gold. For this fine art market, there can be no end in sight so long as the absurdity of opulence grows to Greek tragedy proportions. Expect many of Warhol’s works, to be auctioned off over the coming months and years, to be bought, just like gold, by Chinese and other foreign investors. They will be excited to have the opportunity to enter into the Warhol market at selloff prices. 25 years after the artist died, his art foundation will soon potentially flood the Warhol market by bringing to auction the rest of his estate – more than 20,000 works it expects to see for approximately $100 million. To do the selling in this way wreaks of a lack of understanding of markets and/or a disrespect for the market valuation of Warhol’s works. They are doing, in essence, just what Gordon Brown did with the UK’s gold in 2003: alerting the markets to the selloff, and then selling off at rock bottom prices.
Or the auctions could demonstrate the increasing wealth of Ultra High Net Worth Individuals and continue the trend of fine art breaking its own price records over-and-over since 2008, just like gold.
Christie’s has been enlisted by the Andy Warhol Foundation for the visual Arts to sell off its remaining silk-screen paintings, drawings, prints, collages, photographs and archival materials. The Chairman of the foundation, Michael Straus, says the foundation will try to use the proceeds to build up its $225 million endowment and expand its art-related grant programs. ”We’re converting art into money,” Mr. Straus said.
In other words, “We’re cashing out while the getting is still good. There’s no telling what the end of the financial system portends!”
Warhol is one of the art market’s timeless commodities. Some suspect this blitzkrieg selloff could re-price the entire market for his pieces, because the foundation is putting so many pieces into circulation at the same time. Included in the selloff are 350 paintings and 1,000 prints, as well as thousands of drawings and unique photographs the artist took during his four-decade career.
Art dealer Alberto Mugrabi’s family owns at least 800 Warhols. He said the estate has been talking about selling off its inventory for more than a year. Mr. Mugrabi said he and other dealers offered to buy it, but the foundation declined. Mugrabi is now worried that the firesale will “dilute” the Warhol market. ”It’s ridiculous—they have a great product, and they’re pushing it out into the market like cattle,” he added.
Warhol’s work is prized among collectors who pay a premium for the 8,000 paintings and sculptures he made between 1952 and 1987. It is a rather liquid market, as about 200 works a year get auctioned off. Indeed, the Warhol market has become a gauge for the greater $25 billion art market. In 2011, $346 million worth of his art was auctioned off aboveboard, the third highest revenue generated by an artist in the market.
The economy of the Ultra High Net Worth Individual is booming. Fine art is not a part of the overall global economy much like gold is not money for the overall economy. But, for the UHNWI, fine art and gold are the pinnacle of wealth. That’s the way it has always been throughout history. And now, with the US Dollar in decline, developing nations are seeking to join into the powerful fine art market, such as China, India and others. They have entered the fine art market much like they have entered the gold market: which much enthusiasm. In 2003, Christie’s sold $98 million out of its Hong Kong office. In 2011, they sold $836 million.