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Inside the Auction Market

Nov 1, 2008 12:01 AM   By Martin Rapaport
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RAPAPORT...François Curiel began his career at Christie’s in 1970 as a summer intern working between semesters of law school. When a job opened up at the end of the summer, he stayed — and has been there ever since. Now, 38 years later, Curiel is a director of Christie’s and head of their international jewelry division. Martin Rapaport interviewed him shortly after the New York sale.

Martin Rapaport: Your New York auction was held the same day the market dropped 700 points. How did the auction go?

François Curiel: The auction on October 15 went well in a market that has known better days. The general atmosphere in New York was tense. In the media, 40 percent of the news was about the state of the economy and the other 60 percent about the Obama-McCain confrontation. We had quiet public viewings during the weekend, when they are usually busy. When I walked to the rostrum, 40 percent of the lots were covered by written bids. Normally, it is about 60 percent to 70 percent. During the auction, there were about 10 to 12 clients on the phones, instead of the usual 20 to 30. So, the signs were there that we were going to have a decent auction, but not the sale of the century.

The Ponahalo rectangular cut diamonds of 102 carats, L color, VS2 clarity, and 70 carats, L color, SI1, were sold for $6.2 million. This comes to $40,000 and $30,000 per carat, respectively. Not bad and certainly a sign that there is more liquidity in our market than in finance. Both gems were sold to Amer Radwan, an important professional based in Dubai. This told us that the Middle Eastern market was still strong and at that date more active than the U.S.

Another interesting price was $485,000 per carat for a 5.60-carat, pear-shaped, intense purplish pink diamond that sold for $2.7 million to Alisa Moussaieff. In today’s climate, it is quite an achievement to sell three stones for $8.9 million. Six months ago, the prices might have been 20 percent higher. A good example is the rectangular cut diamond of 16.05 carats, D potentially flawless, which went for $130,000 per carat in this recent auction. Six months ago, we sold a similar stone for $160,000 per carat. However, the good news is that in 2006 that stone would have sold for $80,000 or $90,000 per carat. So, we are still up from two years ago, but down from recent months.

MR: How do you think the financial meltdown is going to impact the market for large diamonds?

FC: The world of diamonds is a microcosm, a drop of water in the ocean of the financial markets, which are estimated at $3 trillion. These troubled times will impact our industry. I see slower sales for the Christmas season so important to our business, and for us auctioneers, “smaller” sessions. In 2007, sales in Geneva, Hong Kong and New York took in between $40 million and $60 million each. It looks as if we are back to $20 million to $30 million per auction. Not bad, but sometimes difficult for the younger members of our team to understand.

MR: Were the prices a few months ago speculative in your view? Were they a bubble waiting to burst?

FC: I do not believe they were speculative. There was an enormous amount of wealth being redistributed in the world. Collectors from emerging markets appeared at every auction; new buyers from Asia, the Middle East, Russia and China came to our sales eager to acquire gemstones. There is only a certain number of 10-carat D flawless in the market and a limited supply of better-quality large stones. There were more buyers than sellers, the demand was greater than the supply and the prices went up.

MR: Were these rich Arabs or rich oligarchs, oil people?

Oil, gas, metal, commodities, finance — with many hedge fund managers — IT, you name it. The full spectrum of activity: Middle East, Russia, Ukraine, China, but also Europe and America.

MR: Do you think the Arab market will continue to retain its strength in light of oil prices coming down?

FC: Our October Dubai jewelry and watches auction made $8.2 million, which was below our expectations. This demonstrates that the Middle Eastern market has been affected by the crisis like everyone else. Nevertheless, almost 95 percent of the 40 watch lots sold for $767,000 and a pear-shaped diamond of 10.06 carats, D potentially flawless, fetched $82,500 per carat, or $830,000. In the same auction, a suite of yellow diamond jewelry by Adler brought $1.8 million. So, there is definitely activity there, though on a lower level than during the first half of 2008.

In addition to Amer Radwan, several other important actors from the Middle East were also active in the October auction. On one hand, there is less liquidity but, on the other, interest rates are very low, which encourages collectors to turn to stones. All over the world, governments are printing currency to protect their economies and reassure their citizens. So inflation is bound to appear again. Is it better to have a million dollars in your account or to own a diamond at the right price?

MR: Do your clients think of diamonds as an investment?

FC: I have yet to meet someone who wishes to buy a diamond who does not want to make sure he/she does not lose money the day it is resold. Rather than “investment,” I would use the word “diversification” in a very portable international currency.

MR: So it’s more like store of value?

FC: Let’s say that big or small investors diversify their portfolios and some of them put a percentage of their wealth into diamonds. They are such a good hedge against inflation and easy to carry in one’s pocket.

MR: Is it going to be a very quiet period?

FC: We are in the middle of a giant storm. I recently heard a financier describe it as a virus that had infected our systems, which had not yet been identified and for which there is yet no cure. No one knows where it is exactly and the extent of its aggression. All industries and countries are intertwined. It is impossible for one sector to do well, while the others are depressed. One exception: Volkswagen, which appears to be doing very well at the moment. Looking to the future, I do think that clients from good old America and the emerging markets will continue to be active in our field.

MR: Has South America been involved at all?

FC: Not much. We have been talking about Brazil and its potential for years, but we have not seen much buying recently from that country or from South America in general.

MR: What are the people like who spend millions of dollars on one stone?

FC: Nice, normal human beings, old and new money, who want to please someone. I know it is a bit of a cliché, but there it is.

MR: So prestige is an important part of demand?

FC: Yes. Pleasing someone, showing that you are serious about a relationship and also, possibly, a confirmation that you have made it.

MR: In terms of auction sales, does it matter if the price level goes up or down as long as you make sales?

FC: Yes and no, because the difficulty in the world of auctions is to find the property at the right price. If the prices are not high enough, a vendor will not consign to an auction.

MR: Does Christie’s own the stones it sells or are these all clients’ stones?

FC: We act as agents between the owner of a stone or jewel and the buyer. So no, we do not own the stones we sell and, in the rare instances when we have a financial interest in an object, it is clearly indicated in the catalog.
MR: Is there a real shortage of 10-carat-and-larger stones?

FC: There was a definite shortage in the period from January to June. So it was a seller’s market. Things have changed since October and it has become more of a buyer’s market.

MR: Do you think diamond dealers are investing their money in diamonds as a longer-term investment?

FC: Most diamond dealers I know are passionate about this business and when they see a great stone at the right price they cannot not buy it, even if they do not have the cash. I have never met a diamond dealer whose only interest is the bottom line.

MR: What makes a stone great?

FC: Its ideal proportions, its life and whether it talks to you or not. We had a group of young gemological students come to our New York viewing in October. We sat them behind the showcases, like real professionals, so that they could examine the diamonds. What struck me was that the first thing they did when they picked up a stone was to loupe it. I smiled because this is what I did when I started in the business and this is what all gemological schools teach you to do. When one gets a bit older, the loupe comes second and one first looks at the diamond in one’s hand. Do I like it? Even though the proportions might not be perfect by GIA [Gemological Institute of America] standards, do I want to own this stone? Ten people look at a gem, 11 opinions. So, what makes a stone great? Your eye and appreciation of it.

MR: Does provenance add tremendous value?

FC: Yes. There are naturally the 4Cs, to which we have now added the letter “P” for provenance. Provenance can change the value of an item by a great percentage — there is no limit. When we sold the 16-carat D flawless Aga Khan engagement ring in 1995 in Geneva, the market for that stone was between $90,000 and $100,000 per carat. Yet, it went for $150,000 because of its provenance. The same goes for jewelry. In April 1998, we offered for sale in New York the Argentinean sapphire and diamond flag brooch by Van Cleef & Arpels that previously belonged to Eva Peron. It had a presale estimate of $80,000 to 120,000, but sold for close to $1 million — and the provenance had everything to do with it.

MR: Do you think that there will be many diamonds coming into the market due to financial difficulties or because diamond prices are high? Do you expect more stones coming in from the private sector?

FC: Not necessarily. It is true that six months ago we saw diamond prices reaching the $200,000 per carat mark and even a million dollars plus for colored diamonds. We were offered a few stones that prompted collectors to consign gems we might not have seen, had the level of prices not been so high. At the moment, many collectors will hold on to their diamonds, probably thinking that they would rather own a stone than cash, as it is now difficult to get a decent return from the traditional stocks and bonds.

MR: Is Christie’s in competition with jewelers? How do you manage to integrate B2B with B2C?

FC: Not an easy answer. On the one hand, we are competitors because when a diamond cutter or a private collector consigns to an auction a diamond or a piece of jewelry, it is not sold through a jeweler. But some vendors prefer to sell their property directly to dealers or retailers. In 2007, Christie’s sales of jewelry were $400 million worldwide. De Beers says that the market is about $70 billion, so there is room for everyone. What I think is good about the auction market is that it is a barometer for the industry. And when we sell a blue diamond of 13.39 carats for $8.8 million — as we did in Geneva in May 2008 — or a pear-shaped diamond of 38 carats, D, VVS1, for $190,000 per carat — London, June 2008 — it surely helps the business as a whole. It also contributes to creating the excitement and desire for jewelry.

MR: Is the auction really theater? Is the experience of suspense and excitement an important part of what you’re selling?

FC: Yes, indeed. You look at the property before an auction and mark your catalog accordingly. Yet I often see mature dealers surpass their limit, if they see one of their competitors going after a particular piece. One has to make up one’s mind very quickly, there is an element of competition and all this creates a very exciting atmosphere. So, market conditions, a human element and yet a completely transparent operation.

MR: What about the bidding “off the chandeliers”?

FC: Most pieces of jewelry offered at auction have a reserve price, a minimum price below which an item cannot be sold. This minimum price is confidential between the seller and Christie’s, so the auctioneer starts the bidding below the reserve. If there is a bid in the room, the auctioneer bids on behalf of the seller against the person in the room, up to the amount of the reserve. Once this level is reached, the auctioneer does not intervene and acts as an arbiter of a ping-pong or tennis game. So this famous “chandelier,” which no one has ever seen, is in fact the reserve.

MR: What percentage of diamonds comes from private consumers versus diamond dealers and manufacturers? How has the auction market evolved over the years?

FC: When I started some 38 years ago, 90 percent of an auction came from private sellers and estates. By the same token, 90 percent of the buyers were dealers. The public would go to Christie’s to buy Old Master pictures or furniture, but acquiring jewelry at auction was not so popular. Today 60 percent of the sellers are private collectors. As for the buyers, it is about 40 percent trade and 60 percent private.

MR: Are signed pieces of jewelry more valuable and how big is this market?

FC: Seventy percent of the jewelry we sell is unsigned. Signatures like
Boucheron, Cartier, Van Cleef & Arpels, Tiffany, Harry Winston, just to name a few, are extremely important and sought after. In the eyes of certain collectors, they add to the desirability of the piece.

MR: How much would a serious premium be?

FC: Difficult to say, between 10 percent and 15 percent. It is a kind of reassurance factor. If the piece was designed by a firm that has a reputation of excellence, it must be good quality.

MR: How do you deal with diamond treatments? Are clients assured that if they buy something it’s not treated?

FC: Better-quality diamonds and gems most often come with grading reports from highly respected laboratories. We also have nine trained gemologists on staff whose only job is to check and price stones. If there is any doubt about treatments, they send the gem to a laboratory.

MR: You’ve seen difficult economic times before. What happened during the big inflation of the 1970s and the crash of the market in the 1980s — how did they affect auctions?

FC: Auction sales suffered, plummeting from $197 million in 1990 to $112 million in 1991. They only started picking up again in 1994 when they shot up to $190 million and, in 2007, we reached $400 million. When prices went down, a high percentage of lots were unsold, so we accepted less jewelry for sale, we were very cautious about what we took and had much smaller auctions.

MR: Have you ever seen anything like the current financial crisis before?

FC: In my 38 years at Christie’s, I have never seen anything like what we are going through now. Lack of liquidity, lack of trust in the financial institutions, lack of visibility toward the future, a volatile stock market. We are in the middle of a very bad patch. I often remember what the late banker, Edmond Safra, learned from his father: When the earth trembles around you, do not move one millimeter.

MR: Where do you see the market in three, four or five years?

FC: This too shall pass. Are we in for one, two or three years, I do not know. I do not believe that anyone has lived through similar circumstances in the past, but I passionately believe in our industry and I passionately believe in diamonds, colored stones and jewelry. It’s one of the oldest trades, one of the oldest businesses, in the world and I can only see it developing and thriving again in the future.
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Tags: Auctions, China, Consumers, De Beers, Dubai, Economy, GIA, Harry Winston, Hong Kong, Jewelry, Laboratories, Russia, Tiffany
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