What Art Investors Can Learn from Gold Investors Pt. 4 – artmarketblog.com
The definition of an investment, in financial terms, is basically the purchase of a financial product or other item of value with an expectation of favorable future returns. In general terms, investment means the use money in the hope of making more money (definition from investorwords.com). Although gold is often referred to as an investment, it really is not a good investment, especially over the long term. James Turk, founder and chairman of GoldMoney as well as co-author of the investment bestseller ‘The Collapse of the Dollar’, says that “Gold is not an investment. It is money. Gold doesn’t generate a rate of return like investments do. The price of gold is rising against all the world’s currencies because currencies are losing purchasing power, while gold is preserving purchasing power”. Instead of calling this article ‘What Art Investors can Learn from Gold Investors’, I should probably have called it ‘What People who use Art for Wealth Preservation can Learn from People who use Gold for Wealth Preservation’. However, if I had used the more correct title I do not think as many people would have read this series of posts.
The sort of investment I am writing about is an investment in one’s future financial security; an investment in wealth preservation, not wealth creation. I am not suggesting that art is as good a substitute for paper money (currency) as gold is. You may, however, be surprised to learn that fine art IS actually used as a form of currency in the criminal underworld. Stolen paintings are often used as collateral for drug or weapons deals which means that there is a black market for works of art which, interestingly, value works of art at as little as one tenth of their auction price (a great topic for a future post !!!). For a work of art to have value as a form of currency there are certain characteristics that the work of art needs to have. It would make sense that the more people who find a stolen work of art desirable, the more valuable the work of art would be on the black market. The most universally appealing and desirable characteristic that a work of art can have is the sort of instantly gratifying beauty that characterised the work of the old masters, and also the work of the more modern movements such as Romanticism, Realism and Impressionism where beauty and aesthetic satisfaction were still prime motivators. Essentially what I am referring to is the traditional and transcendental definition of beauty that aims to induce pleasure through physical attractiveness. An article that appeared in Forbes magazine in 2001 titled “Old Masters Soothe New Troubles” (by Anna Rohleder) described why the work of the old masters is so widely admired and universally accessible with the following statement: “At times like this, it isn’t fair to tax viewers with the opaqueness or abstraction of more modern works. Old Masters are accessible, their attractions obvious and their effects immediate. Old Masters convey a “feeling of peace and tranquility, a sense of timelessness that we are all searching for in our frantic lives,” says Arthur K. Wheelock Jr., curator of northern Baroque painting at the National Gallery of Art. “Great art makes you see the world differently.”
As you already know, wealth preservation is about protecting the wealth you already have. In the short term, wealth preservation is about maintaining a hedge against investments you have in more volatile markets such as the stock market. In the long term, wealth preservation is about maintaining some sort of protection from potentially devastating and crippling events such as a major financial crisis. It is long term wealth preservation that I am most interested in as it is the most relevant to the art investor. Legendary author and financial advisor Howard Ruff, in an article he wrote titled ‘Gold and Silver Insurance’, explained one of the reasons that gold is such a good long term wealth preservation vehicle. According to Ruff: “It’s there (gold) to use as real money in the case of a worst-case, like an inflationary currency collapse, or terrorist hackers shutting down the power grid so no one has access to their dollars at the bank or at the ATM and they can’t open the supermarket cash registers. It’s in case the same terrorist-financed hackers break into the computers of the money-center banks where most of the world’s dollars are there in hyperspace, insert a destructive virus and the world’s dollars disappearing in a nano-second.
Remember, only about 5% of the worlds’ dollars are minted, printed or coined. The rest are only on the computers of banks. If the computer data is wiped out, there could go the monetary system of the world, because the dollar is the world’s reserve currency. This would mean the instant collapse of the American economy, and maybe Western Civilization. Then the world would instinctively go back to gold and silver as a means of exchange and store of value until the computers are fixed and a new paper-money system is cobbled together.”
To be continued………….
**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of http://www.artmarketblog.com, writes the art column for the magazine Antiques and Collectibles for Pleasure and Profit and contributes to many other publications
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