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Why auctions thrive in a bad economy

By Jeanine Poggi,
October 22, 2008 20:38 IST
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While the stock markets were tanking Wednesday, the opposite was happening at Christie's New York auction house. There, a jewelry auction was taking place, and from the bidding and final take, one would never know the economy is struggling.

The auction sold 69% by lot and 82% by value, resulting in a total haul of $29 million. The highlight of the auction, two Ponahalo Diamonds, sold for $4.1 million and $2.2 million each.

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  • "In a volatile market when the Dow lost 700 points in a day, nearly $30 million of jewelry and precious stones changed hands at Christie's in less than five hours, thus demonstrating the relative stability of the jewelry market and the long dependability of gems as a store of portable value," Rahul Kadakia, Christie's head of jewelry, said in a statement.

    And this isn't the only time auction houses have shown how immune they can be to tough economic conditions.

    Mere days after Lehman Brothers' collapse, a yellow diamond ring went for $144,000, four times the expected price, during a Sept. 22 sale at Leslie Hindman Auctioneers in Chicago. Three days later, a sapphire and diamond Van Cleef and Arpel's ring sold for $656,500 at Sotheby's, more than double its pre-sale estimate.

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  • "Whenever things get rocky elsewhere, like the stock market, we always find jewelry and diamonds do very well," says Joanna Hardy, head of jewelry at Sotheby's London. "These investment pieces are something you can put in your pocket, and are more reassuring than assets sitting in stocks."

    Art and Clothes as Investments

    As luxury consumers lose their liquidity, they tend to start considering other forms of investments that can hold their value in bad times--and skyrocket in price when times are good. Contemporary art is a prime example.

    "What other form of art can you get the crème de la crème for only 10,000 pounds [$17,279]?" says Kerry Taylor, owner of Kerry Taylor Auctions in London.

    There are closer-to-earth bargains, too. For 100 pounds ($172.80) a bidder can snap up an original 1950s ball gown. Those looking for investment pieces can find a couture Chanel suit or Yves Saint Laurent gown for a fraction of the cost at retail--and perhaps turn around and sell the items later.

    "It's a great value for the money," Taylor says. "These vintage pieces are well made, with fantastic fabrics, and a majority of the time are better quality than any item you will find today."

    And the prices are on a steady rise, Hardy says, since consumers are educated as to what items are of higher quality. "They have become more appreciative and discerning," she says, and that's what pushes up prices over time.

    New Sources, New Items

    What also makes auctions of interest during difficult times is the sheer flood of items that go on the block. The economic downturn has been a driving force behind new consignors showing up at auction houses. Hardy says Sotheby's Dec. 9 jewelry auction has 430 lots, while its last major auction on Sept. 25 had just 130 lots.

    "Especially when it comes to jewelry, many people have items sitting in their safety deposit boxes that they don't need and haven't worn for years," says Leslie Hindman, owner of Leslie Hindman Auctioneers. "They are looking in their closets and seeing what they can sell to make some quick money."

    What are you buying or selling on the auction market? Weigh in. Share your experiences in the Reader Comments section below.

    In some cases, the pre-auction hype far exceeds expectations. The highly anticipated Hip Hop Crown Jewels auction at Phillips de Pury & Company in New York has been pushed back to March 5, 2009, from Oct. 1, to "accommodate the increased demand from consignors and buyers who wish to participate in the sale," according to a statement by the auction house.

    But this doesn't mean auction houses and their clients aren't skittish going forward--the rug could be pulled out from under them with plenty of consignors but no buyers. Most houses are taking a wait-and-see approach since they've seen troubles in other corners of the world.

    After Sotheby's Hong Kong auction on Oct. 7, where big stone after big stone went unsold and the total missed pre-auction estimates, the house's stock price dropped 5.8%.

    "For auction houses, you are only as good as your last sale," Hardy says.

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