Last week’s record sales and a two-week total of $2bn in art sold in New York has brought out a number of commentators eager to divine the meaning of so much money being spent on art. Taken out of context, the spending easily overwhelms.
But remember that in the same time period, a group of young men turned down $3bn offered for their unprofitable (and unforseeably profitable) company and a mysterious digital currency that is barely in use quadrupled in value. By those standards, the art market is a sober place.
These other markets explosions are the product of anticipating the unknown but we’re told that the art market is the result of conscious and cabalistic manipulation.
Here’s how Georgina Adam sees it in her BBC column:
As the prices rise, so does the incentive to buy more – and bidding up works by a name already in your collection increases their value even more, which might be really useful if you want to use it as collateral for a loan one day.
This presumes bidders are confident they won’t be the final buyer. How do they know this?
Is there financial manipulation going on as well? A small group of dealers and collectors are certainly encouraging this inflation, by giving so-called guarantees on works sent for sale. Under this system, they promise to buy a work of art at a secret price, so ensuring it will sell. If it goes over their bid, then they share in the extra money generated. So the work is sold even before it hits the auction block. The system has become a fearsome weapon in the auction houses’ armoury when they are fighting for consignments: many blame it also for inflating prices. Christie’s sale this month was underpinned by no less than 22 guarantees, some given by outside investors, others by the firm itself.
It’s not clear whether all guarantees are inflating prices or just the third-party guarantees given by dealers. We know that the sellers who receive guarantees can suffer when bidders are put off by the presence of a strong and likely buyer. We saw that in a number of places last week where desirable works sold on a single bid.
The distinction between third-party guarantees and direct guarantees is important. Third party guarantees are a way for auction houses to bring works to market without taking on risk themselves. Unfortunately, without the risk, the auction house gives up some, if not the bulk, of the profit.
When the guarantees shift rapidly from third parties to directly from the auction house, it is a sign that the auction houses feel very confident about the market and are eager to take in risk to receive the reward. This season there was a pronounced shift to direct guarantees. That’s the opposite of a manipulated market. That’s a market where the auction houses don’t want to be left out of the party.
None of this should be used as an argument to support Adams’s final thought on the market:
So at the upper reaches of the market, buying the top names is also a pretty safe bet.