The price of gold has increased significantly in recent times and is poised to increase even more over the coming months. Although the art market is a unique market that appears to have very little in common with other investment markets, there are very important similarities when comparing the art market to other markets that usually turn out to be very useful. In fact, even analysing small differences between the art market and other markets can prove to be beneficial when assessing the art market as a whole or a particular sector/event. It is interesting and useful to make comparisons between what is happening in the art market, and what is happening with other investment markets.
Gold has been used as a store of value/wealth and a form of currency for thousands of years and has continues to remain the ultimate universal representation of wealth and value. To understand what the gold market has to teach us about the art market and art investment one must first know a few important things about gold and the gold market. One of the most significant reasons that gold is such a highly prized metal is that is a very rare and finite resource. In fact, it is estimated that if all the gold that has been mined on earth to date were put together it would not quite even fill a 20mx20m cube. Add to this the fact that the amount of gold mined every year would only add 12cm to this cube and one can see exactly how rare gold is. Not only is gold rare, but it also has particular physical properties that make it even more desirable and more suitable as an investment. It is partly because gold does not corrode, rust or tarnish, and cannot be counterfeited, that it is such a suitable store of value and such a popular investment. By purchasing physical positions in gold one can feel pretty confident in the knowledge that it is extremely unlikely that their gold will ever be destroyed.
An article in the National Geographic magazine from January 2009 said that: “Gold is not vital to human existence; it has, in fact, relatively few practical uses. Yet its chief virtues—its unusual density and malleability along with its imperishable shine—have made it one of the world’s most coveted commodities, a transcendent symbol of beauty, wealth, and immortality.” Although the physical properties and rarity of gold contribute significantly to the value bestowed upon the precious metal, there is one other extremely important characteristic of gold that makes it so attractive and that characteristic is beauty. As the National Geographic article says, gold has an imperishable shine as well as a lovely lustre and beautiful gold glow that seems to make most human beings weak at the knees. The website gold.org sums up the attractiveness has this to say about the attractiveness of gold: “Since the beginning of time, the intrinsic beauty, warmth, sensuality and spiritual richness of gold has earned it pride of place as the favourite metal of jewellers. Gold has inspired craftsmen to create objects of desire that unite us with our emotions. In the Middle Ages, alchemists attempted to use their magic to make gold from other metals. They believed that gold was a source of immortality, and so it was used in medicines designed to fight old age and prolong life.”
All one has to do is look at the jewellery people are wearing to realise that gold is considered by most people to be a substance of great beauty. Since gold has very few uses other than as a material for making jewellery and other precious objects, were gold not physically attractive, it would not be anywhere near as desirable as it is. However, it is not just the fact that gold is physically attractive to human beings that makes it an excellent investment and a highly valuable substance. It is because so many people find gold desirable and attractive that there is such high demand for gold. If only a small percentage of the population were to find gold attractive and desirable then demand would be much lower. The desirability of gold can be linked to three main factors: physical beauty, mass appeal and rarity. Without any one of these three factors, gold would not be anywhere near as valuable as it– explore in relation to art investment.
Gold is a finite resource which means that only a limited amount of gold exists on the earth. At some stage in the future all the gold that remains in the earth’s crust will be extracted by mining companies and that will be that. Gold cannot be artificially produced so only a certain amount of gold will ever exist. When it comes to fine art, rarity is a factor that comes into play on a regular basis, and is extremely important to consider when approaching art as an investment. Original works of art are pretty much always one offs and therefore rare in their own right so it is important for art investors to look at the bigger picture. Just like gold, the work of a deceased artist is finite resource whereas a contemporary artist who is still alive could go on to produce any number of subsequent works of art. A good example of an artist with a small oeuvre is Vermeer whose oeuvre consists of an extremely small number of works; thirty seven paintings are known to have been definitely painted by Vermeer with a further 13 or so attributed to his hand. Because there are so few works by Vermeer in existence there is huge demand for his work which usually sells for tens of millions of dollars. Rarity can also apply to the number of works on the market as opposed to just the number of works an artist produced. The work of artists whose work is in high demand from public museums and galleries will often fetch higher prices when their works to come on the market because so many of their works are owned by galleries and museums, which leaves less works for private collectors and investors to purchase.
Art investors who want a safer long term investment as a hedge against more speculative investments should therefore be purchasing the work of deceased artists who produced as small a body of work as possible. Art investment should not be a short term speculative investment, as some people believe it should, and should only be approached as a long term hedge against speculative investment markets such as the share market.
The World Gold Council summarises the allure of gold quite nicely with the following statement:
“Since the beginning of time, the intrinsic beauty, warmth, sensuality and spiritual richness of gold has earned it pride of place as the favourite metal of jewellers. Gold has inspired craftsmen to create objects of desire that unite us with our emotions. In the Middle Ages, alchemists attempted to use their magic to make gold from other metals. They believed that gold was a source of immortality, and so it was used in medicines designed to fight old age and prolong life.”
