With this shaping up to be a lackluster trading week, perhaps the biggest financial news didn’t come from the floor of the NYSE, but rather from the auction block at Sotheby’s. Edward Munch’s famed painting “The Scream” fetched a staggering $120 million, setting a new record sale price for a single piece of art.
This week’s action as a whole saw over $330 million change hands, eclipsing even Sotheby’s own sky high prediction of the total auction value. Picasso’s “Femme Assise Dans un Fauteuil” fetched $30 million, topping its high predicted sale price as the general mood at the Sotheby’s sales room was exuberant to say the least.
During the last year we’ve seen various types of collectibles commanding record prices at auctions and sales across the world. From fine art to cars, there has been a flood of money pouring into tangible assets. Last month, Arizona Diamondbacks owner Ken Kendrick paid over $1.2 million for a single rare baseball card from 1909. Even comic books have gotten in on the action, with a copy of the issue that first introduced the character Iron Man fetching a staggering price of $375,000. Needless to say, the art and collectibles market is heating up.
So what’s driving the increasing valuations for collectables? One could argue that this is just another phase of overly inflated interest, were it not for the fact that it’s not just one sector of the collectibles market that’s enjoying the inflow of cash: It’s occurring pretty much across the board.
When we step back and look at these auctions with the perspective of the wider economic landscape, it begins to make a bit more sense. What’s the biggest problem with investing money in collectibles? They don’t bear interest and they don’t pay a dividend. The $120 million which this week’s mystery bidder just paid for Much’s painting is money the buyer could have parked in some financial instrument or other investment. Had he done so, he could expect to earn interest or dividends. The question is how much is the buyer really giving up by not buying a “productive” asset. With today’s zero interest rate environment combined with a notoriously volatile stock market, the reward for participating in the world of “traditional” investments is meager at best. In short, the opportunity cost for collectibles investment is at an all-time low.
In addition, assets such as art and collectibles tend to appreciate well in inflationary cycles. This also factors into the market as wealthy investors are scrambling for assets that stand a chance of maintaining value should the Fed’s dovish policies spark the type of inflation many younger Americans have never experienced.
Through all this, there is one sector of the collectibles market which as of yet has remained relatively quiet. Rare coins have not really seen the type of cash inflows that have driven other collectible prices through the roof; at least not yet. There are a variety of reasons for this, including the fact that gold and silver bullion demand has been at record highs for years. This has diluted the coin market considerably. At the moment, many rare coins are trading for prices barely above the value of the metal they contain when just a few years ago they were valued at multiples of their current levels.
If the trend of collectibles investment continues, it’s hard to make an argument that coins won’t be brought into the limelight sooner or later. Think about it…coins enjoy liquidity and portability that eclipse almost any other collectible asset. This is not to mention the fact that many coins provide investors with exposure to the gold and silver markets which most experts believe to be strong bets in the coming years.
In sum, we know cash is flowing into collectibles at records rates. We know coin valuations have yet to start moving with the rest of the collectibles market. This sounds a lot like an opportunity to catch a growing market in its early stages. It’s a fair bet that it won’t be too long before we start reading about record high auction prices for coins. At this point, it’s probably just a matter of time.
Mike Getlin is Executive Vice President of Merit Financial, home to America's fastest growing physical gold IRA company. Please send comments or questions to firstname.lastname@example.org.