Art Is Not Gold.

by Will Brand on January 10, 2012 · 9 comments Opinion

Well, maybe sometimes: Walter de Maria's "Silver Meters", 1977, at the Dia:Beacon

Discussions of art as an investment are getting smarter. For one thing, we’ve stopped comparing it to stocks. We still get the occasional piece linking auction results to upturns in the Dow (investors have more money!), downturns in the Dow (investors need a safe haven!), or fluctuations in the Dow (investors are seeking a more stable commodity!), but we’ve pretty much stopped with the idea that there’s any clear comparison to be made, as an investor, between, say, four hundred-year-old paintings of women playing the clavichord and part-ownership in a company. We’ve replaced that, though, with an implication that’s no less puzzling: art is like gold.

It crops up in market pieces occasionally, but a feature article in Investment Weekly a few months ago made it explicit. Art in the investment class of “Silver, Wine, Art and Gold” – to be capitalized so we can sound cool and call it “SWAG” (in fairness, that is pretty cool). I’m not convinced.

For the potential investor, art and gold simply don’t have a lot of financial characteristics in common. For one thing, there’s the transaction costs: you don’t pay 20% of its value to sell a bar of gold, as you would selling an artwork at an auction house, and you don’t pay 10% of its value as a “buyer’s premium”; you certainly don’t expect to wait months or years for it to sell; and there’s no danger of needing to deal with either the droit de suite present in Europe and California or the arcane export licenses of Italy, Russia, and other countries. There’s also the costs of ownership: gold doesn’t need to be insured against damage, doesn’t need to be transported by trained handlers, and doesn’t need to be kept in a climate-controlled environment. Besides that, there’s the simple hassle of buying art – you know, do I want to call my investment manager and buy some gold, or would I rather research the present state of the art market, find a viable work, establish a relationship with a dealer, and pay to ship and store that work? It just doesn’t make much sense.

What does make sense is the idea put forward by Bruno Frey in his 2000 book Arts & Economics: Analysis & Cultural Policy (and before that in a 1995 research paper) that art is an awful lot like real estate: pricey, relatively illiquid, highly differentiated, intrinsically useful, and frequently purchased by Russian oligarchs. There are some key differences, of course – in real estate, for instance, there’s no chance of arbitrage, or picking up an undervalued house in Cologne and reselling it in New York – but I’d forward that art and real estate are a lot less different than art and stocks or art and gold. If you can find a housing price index for a particularly pricey area – like, say, the Hamptons – you’d probably even be dealing with the same buyers and sellers (a boon for comparing markets).

So can we make that our new cliché, please? It may take a few more minutes, as a writer, to look up a housing price index instead of a stock market index, but we’d end up a whole lot closer to the truth.


MR January 10, 2012 at 7:18 pm

There was a report published by Deloitte late 2011 on this:

One of the things that stuck out (for me) was the establishment of “art-funds”, traded in a similar fashion to a traditional ETF… Interesting/terrifying possibilities for the future of the art trade. 

Franklin January 10, 2012 at 8:36 pm

A question for Mr. Brand: Have you ever purchased gold, or real estate?

Really, of the three, wine is probably the best analogy. Assuming you never plan to drink it.

Will Brand January 11, 2012 at 11:28 am

I’ve never bought gold. I’ve bought and sold real estate, and for a while, actually, worked as a realtor.

I’ve never bought or sold wine at the case scale, though, so I dunno how that works. It could very well be similar. Does anybody know what’s involved in selling wine? 

Franklin January 13, 2012 at 9:39 am

So art most resembles the one with which you have some experience transacting. Noted.

I have bought all four, although the wine was no investment. Neither was the art. I’m not saying you’re wrong, I’m just saying that you’re not right in any way that matters. All four entail specialized concerns regarding storage, transportation, handling, and transaction markups. You could argue it any way you like.

Will Brand January 13, 2012 at 1:02 pm

Firstly, this isn’t my idea – I said in the piece that I was repeating an idea put forward by Bruno Frey, who is a respected economist who does a lot of work in this field. Actually, if we can be really nitpicky, I think I read that book before I’d dealt in real estate. 

What does it mean to not be “right in any way that matters”? Making a comparison between the markets for two goods – like saying that a rise in the stock market caused a rise in the art market, or like implying that investors are regularly choosing between gold and art – involves making a comparison between the goods involved. When two goods have significantly different characteristics, we have good reason to be suspicious of the implication that their prices have a clear-cut relationship. Information about the similarity of markets, about transactions costs, and about fundamental characteristics of goods that might result in different sets of market failures is essential to the huge body of academic research into the movements of the art market, the smaller body of private analysts doing the same, and indeed to the soundness of our own arguments in casual conversation. All I’m trying to do here is help this idea trickle down from academia to financial beat writers and art news people a little more quickly.

I expect that if your experience with gold as an investment vehicle had been misrepresented by what I wrote above, you would have mentioned it. What you gave me instead, though, is contrarian bullshit of the worst kind. Hey, what do I know anyway, and besides which when I do actually know stuff that’s clearly why I’m wrong? Listen, I love arguing – you’re picking that up, I suspect – but if you don’t actually have anything to say, maybe you should wait for a better opportunity. Shit, not even – just read for all the “buts” and “of course” and “granteds” in the piece, and repeat those sentences with slight changes: “Hey, I think arbitrage is a pretty important factor of the art market!”; “What, exactly, is a comparable housing market index?”; “Surely you’d insure your gold!”; “Italian export licenses aren’t all that hard to get!”. Those are four sample sentences with more weight and intelligence than your current line of argument, and they took all of two seconds to come up with. 

Step. Your. Game. Up.

Franklin January 13, 2012 at 1:54 pm

What does it mean to not be “right in any way that matters”?

You summed it up for me:

Shit, not even – just read for all the “buts” and “of course” and “granteds” in the piece, and repeat those sentences with slight changes…

You could make all those arguments, or their counterarguments, based on the same reasoning that brought you to the conclusion that art was more like real estate than gold. Just put the emphasis on the similarities or the differences as you see fit. You’re right, I should have just waited for a better opportunity to argue. You should grasp economics better. The academic research – which, honestly, I doubt you understand well enough to interpret – shows that these things track each other to some degree. For what that’s worth.

As for whatever sentiment was intended by that video that you intended to hyperlink, here you go.

Will Brand January 13, 2012 at 2:02 pm

I have a BSc in Economics. My dissertation used Frey’s research on this particular question as a central part of its thesis. I graduated first in my class and got a departmental award for the best dissertation. I don’t know your background, so I don’t know how heavily to weigh your doubts, but it seems like the people who work all day as academic economists think I know what I’m talking about.

Franklin January 13, 2012 at 2:24 pm

That certainly sounds like a serious background. Good luck in your future endeavors.

Will Brand January 13, 2012 at 2:25 pm

Thanks, you too!

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