The Art Newspaper Thinks There Might Be a Problem Coming;

Sarah Thornton Thinks Art is Good as Gold

Here’s an interesting pairing. Melanie Gerlis wrote a story in The Art Newspaper asking what becomes of the art market in period of financial volatility:

There are still those who profess to believe that there are markets that can continue to operate in isolation; auctioneers and dealers have been saying for months that buyers from growing economies such as China and Russia can make up for the likely retirement of western buyers. [ . . . ] “There will be a tightening of belts,” says Philip Hoffman, founder of the UK’s Fine Art Fund. Andreas Gegner, director at Sprüth Magers in London, says: “September’s news was more dramatic than we’ve seen before and sent more alarming signals. [ . . . ] I would imagine that people who have started buying art recently, many of whom work in financial companies, may pull out now.” [ . . . ]Historically there has been a loose correlation between the wider economy and the art market, which has taken around 18 months to react to financial downturns. It is now over a year since the sub-prime mortgage fiasco began to unwind.

Sarah Thornton writes in the Telegraph almost as an answer to Gerlis:

For months now, art dealers have been gleefully exclaiming, “Art is the new gold!” Certainly, it’s a reassuringly tangible object when so many markets are scarily virtual. And it is more emotionally and intellectually rewarding than a gold bar. [ . . . ] So, what are the expectations for the next test of the market, the Frieze Art Fair, which opens on October 16? Remarkably, given our descent through the seven circles of financial hell, many are cautiously optimistic. Frieze has the benefit of being close to new non-dom and established European buyers at a time when New York is losing its influence as a marketplace for art. The fair has stringent quality control; only top galleries are admitted and they’re under pressure to hang their best. Additionally, the average price of a work at Frieze was about £20,000 in 2007 – a lot less than your average auction consignment.[ . . . ] Finally, Frieze has already sold roughly 50 per cent more tickets for the public days than at the same point last year. Even if these people are lookers rather than buyers, it’s a reminder that the most important art always gives more than it could ever possibly recoup.

(More after the Jump)

Cash is in great demand at the moment. Those with cash or other liquid investments–the sort of person who generally buys art–will have some stark choices to make in the next year or two. Their money will become more valuable but financial investments will seem to have even greater risk than before. So perhaps art will be the new gold, a pseudo-commodity and a store of value that has no use-value.

On the other hand, governments have taken an aggressive stance toward the debt problem threatening to create money to deal with the devalued securities on the books of so many financial institutions. Those inflationary pressures may keep the art market bouyed up because art is an asset that does better during periods of inflation. (One does have to pick the art that will still be desirable in a few years, however.)

Signs of Things to Come? (The ArtNewspaper)

Is Art the New Gold (Daily Telegraph)