The art markets have enjoyed an ever growing celebrity throughout 2015. Propelled to stratospheric levels of interest by unprecedented prices, art markets have made headlines globally. Indeed leading auction houses; Sotheby’s and Christie’s have witnessed record breaking sales. Sotheby’s £186.44m auction marks the highest sales reached at a London auction whilst Christie’s sale of Picasso’s ‘Les femmes d’Alger (Version O)’ for £116m established it as the world’s most expensive painting at $37m more than the previous high. It is, therefore, unsurprising that Jussi Pylkkanen, Christie’s president, declared art markets to be entering ‘new territory’ the likes of which have never previously been witnessed.
Whilst the art market has boomed across the spectrum, with the global market 20 times as large as it was in 1990, growth has been particularly dramatic within the ‘top works’ sector. This sector, including pieces such as Picasso’s ‘Les femmes d’Alger (Version O)’, accounts for a sizeable 48 percent of the value of the auction market despite representing only 0.5 percent of transactions.
Growth in such a space has been driven in part by an increasing number of global rich who are putting their money into art as an investment, but also as a status symbol. Buyers are representative of an increasing geographical diversity in art markets: auction houses report an increasing trend towards higher representation from Russia, Asia and the Middle East, marking a move away from the traditional collectors of Europe and the U.S. It is now commonplace to receive bids from as many as 40 different countries during any given sale.
This shift marks the transition of art markets from a regionally based and geographically limited market to a truly transnational phenomenon made possible in part by the introduction of technology. Technology has taken art auctions into the digital age and allowed for greatly increased ease with which to take part in remote bidding.
Immune to the bubble?
Commentators cite the increasingly global market as a sign that the art market has only just begun to rise, whilst a seemingly limitless potential for expansion appears to signal an ‘immunity to the bubble’. It seems likely that this view falls short on at least two key points.
Firstly, it fails to consider the depth to which the market is established within expanding areas. The notion of depth raises an important question as to whether buyers from Asia and other growing areas would be capable of making up the shortfall; should European or American markets weaken. Anders Petterson of ArtTactic points to his research and suggests that despite the hype surrounding buyers beyond Europe and the U.S they ‘could never take up the slack’.
Secondly, the idea of the art market as limitless excludes an acknowledgement of existing constraints. Although the market is increasingly diversified with an ever growing number of artists and galleries, this growth is occurring in areas beyond the key ‘top works’ sector that is largely responsible for surge in the market.
As an investment category ‘top works’ is unique in its limited inclusion of artists and its lack of diversity: over the past 20 years sales have been largely limited to a select group of artists capable of bringing in multi million pound sums. This lack of diversification signals a market that is less robust to external shocks than more traditional investments.
Looking to the future
Despite the resounding growth within art markets and their increasing prominence as an asset category in their own right, it seems likely that investors ought to pursue investment in this sector with caution. Whilst some have argued that the market is unlikely to be impacted by a collapse of the ‘bubble’ this appears to be a somewhat short-sighted view driven by the present strength of the art market in emerging markets. In reality it is highly likely that the increasingly global nature of the market is not yet established enough to weather a weakening of the market in traditional art centres should this happen.
UK Gas Prices Surge Following Deadly Austrian Explosion
Gas prices have soared to their highest level since 2013, following an explosion at a natural gas hub in Austria, which threatened supplies already affected by a closed North Sea pipeline.
UK natural gas prices jumped 23% – to 73.7p a therm – on ICE Futures Europe ($9.86 a million British thermal units).
The blast, at Austria’s Baumgarten import hub, happened at around 9 a.m. and left at least 18 people dead. This interrupted flows at one of the main points where Russian natural gas enters Europe. This follows two days of snow in London and cold temperatures elsewhere in Europe.
Arne Bergvik, chief analyst at Swedish utility Jamtkraft, has said that it is the “worst possible time” for a big gas hub to burn, as capacity is needed ahead of the winter and it changes the expectations of how much gas there will be available. He said:
“If weather turns colder and capacity is unavailable, it will absolutely drive up power prices.”
Both gas and oil prices were already affected this week, due to the shutdown of the Forties Pipeline System, which delivers around 40% of the commodities from the UK North Sea.
Rising energy costs are contributing to the UK’s high inflation rate, which increased at 3.1% In November, its fastest pace in five years.
Why Bitcoin Is Not Chipping Away at Demand for Gold
The simultaneous rise of bitcoin and relatively poor performance of gold has provoked many to ask whether the two assets are in competition. The short answer is no, they are not.
“Bitcoin has real potential, if it were to become digital gold it might have tremendous space to grow,” said Gabor Gurbacs, Vaneck Securities Director of Digital Asset Strategy. It is this sentiment which has put the two in contest. However, the investor pool for each is “vastly different”, according to Jeffrey Currie, head of commodities research at Goldman Sachs.
Gold based exchange-traded funds are currently at close to their highest since May 2013, suggesting the metal remains part of investor’s portfolios, and not that investors have not cashed out and moved over to bitcoin. The reason this is not the case lies in comparing the function each asset serves and the investors it attracts.
Comparing Bitcoin and Gold
Bitcoin attracts more speculative investors looking for quick returns, while gold is often held as a portion of investment portfolios to spread risk. In times of economic downturn gold tends to go up in price, balancing any losses from stocks and bonds. The two assets currently serve distinct purposes. Consequently, bitcoin’s price rise is unlikely to have turned investors away from gold.
Oil Prices Rise as UK Major Pipeline Closes for Repairs
Oil prices have reached a two-and-a-half-year high after a hairline crack was found in one of the world’s most important oil conduits. The Forties Pipeline System, which carries 40% of North Sea oil and gas, is closing for repairs after the fault was found near Aberdeen, Scotland.
This pushed Brent crude to over $65 a barrel, which it hasn’t reached since June 2015.
Tom Crotty, Director of Ineos Group, which operates the Forties network, said that the pipeline’s closure is a “force majeure situation” that will prevent the operator from moving oil through the system for the next two weeks. He said that they will know in the “next few days” how long the system will be closed for. Although routine maintenance work on pipelines is common, closures related to cracks of this nature are not.
Oliver Jakob, an analyst at Petromatrix, a Swiss-based consultancy, said:
“It’s more than just a supply disruption because it’s more significant as a price maker. There’s one thing which is the volume of oil which is lost, but it’s also that it’s a key price benchmark.”
Also, according to McKinsey Energy Insights, the closure may benefit sellers the Middle East and Asia-Pacific region as buyers look at alternatives to the North Sea supply.
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