Is art a valid refuge from inflation?

Gold is frequently cited as investors’ favourite safe haven. But what about art? Art has a decent track record during times of inflation – something central banks seem keen to see return. So could now be the time to pick up a bargain, given auction prices were down 37% by March this year from their peak last October, according to Art Market Research?

According to New York University professors Jianping Mei and Michael Moses (who created the Mei Moses Fine Art index), art returned 7.7% a year between 1875 and 2000, against a 6.6% return from US equities. And as central banks flood the global economy with cash, competition for goods and services could provoke inflation – perhaps quite soon. That would push up the price of ‘real’ assets, such as art, says Angus Murray, chief executive of the recently launched Castlestone Collection of Modern Art fund.

His fund aims to buy 100 pieces from 50 key postwar artists, including Andy Warhol and Mark Rothko. It will hold these until March 2017, when the fund closes and the proceeds are distributed to unit holders. The fund has a 1% annual management fee, a minimum investment of £10,000, and a 20% performance fee. So should those who fear inflation swap their gold holdings for art?

Perhaps not. Art can indeed be a “valid refuge” from inflation, New York-based art dealer Richard L. Feigen tells Bloomberg. However, “a bar of gold is a bar of gold”, whereas “no two works of art are the same”. So if you’re really interested in buying art to protect your wealth, you’ll need expert advice – first to help you pick the right pieces, but also to avoid fakes.

And if all you’re interested in is an inflation hedge, then you are better off sticking with gold. It doesn’t come with hefty performance or management fees and is far more liquid (easy to sell) than an Old Master. Indeed, art, like any collectible, should be seen first as a hobby, and only secondly as an investment.

If you still fancy yourself as a collector, the trick to finding potential bargains is to avoid big auction houses, such as Sotheby’s. Head instead to more provincial ones, says one art buyer we spoke to, who recently saw a portfolio of drawings by Damien Hirst sell for £60 at a south London auction house. The best bet for gold bugs is a cheap exchange-traded fund such as ETF Securities Gold Bullion fund (LSE: GBS).

Merryn

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