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‘Tis the season to splash the cash

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Winter festivals Diwali, Christmas and Chinese New Year provide a boost for high-value goods.   

The Eurozone crisis rumbles on and in the UK there is talk of triple-dip recession. Yet around the world sales of gold, fine art, jewellery and other high-value goods are peaking as the festive season continues, apparently oblivious to economic jitters.

In November, the five-day Hindi Diwali festival helped revive demand for gold jewellery. Buying the metal during the festival is thought to bring good luck and prosperity. While Diwali gold sales were down on last year, they still reached an estimated 70 metric tonnes.

Indeed early signs suggest high net worth individuals will continue to “splash the cash” this Christmas on everything from precious gems and expensive jewellery, to works of art and supercars.

Looking ahead to Chinese New Year, which falls on 10 February 2013, cash is the preferred gift. Small red and gold “Lai See” packets are used to exchange the monetary gifts. Precious gifts – including gold and jade – are also popular.

What credit crunch?

“There is still huge demand for high-value assets, ” says Graham Hawkins, global chief underwriting officer, fine art & specie, XL Group. “Despite these poor economic times recent auction sales have been very positive and the sale of high-value diamond goods – the better quality larger stones – are still at a very high level. The gold price continues to rise as well. It’s only a certain tier of assets that has seen depreciation in value.”

During times of economic uncertainty, the affluent often invest in more tangible objects including gold, silver, jewellery and precious stones, fine art and even fine wine.

Art auctions are booming, with a Raphael sketch fetching nearly £30m at the beginning of December, a record price for any drawing in art history.

The art market has largely recovered from the recession, although the price of contemporary art – which soared pre-crisis – is still lagging. It is the old masters – favourites such as Pablo Picasso – that fetch the highest sums. In May, Edvard Munch’s 1895 painting The Scream, was sold for a record £75m (nearly $120m) at Sotheby’s.

“It’s not just limited to the diamond and jewellery business but the whole premium brand market that is seeing high demand, ” notes Hawkins. “Some of the major British, French and Italian houses are broadening their product ranges. It’s a sign that people are still appreciating these sorts of goods and they’re seen as desirable gifts at Christmas and other festive holidays.”

The diamond pipeline

One of the challenges for fine art and specie underwriters is the changing exposures of retailers at times such as Christmas. With a higher number of customers in the shops during the festive season, Bond Street jewellers have higher values in their stores.

Theft and damage remain the main exposures for such goods, although a diamond is less susceptible to damage than an oriental vase. While there is great interest and publicity surrounding high-profile art and jewellery thefts, the level of crime does not appear to be increasing. The difficulty jewellers and galleries face is striking the right balance between security and providing access to shoppers.

Lloyd’s can insure the whole diamond pipeline, from the mine through to the exchanges, the diamond block and finally the Bond Street shop.

“We have a specialist perspective on this industry, ” says Mr.  Hawkins. “We don’t just underwrite the retailer on the High Street. We are involved in this industry at many points from the moment the raw material  comes out the ground.

“This includes the major international diamond mining groups, right through the international wholesale exchanges, including covering the packers and shippers that move these goods throughout the world, through the manufacturing and onto the big exchanges in Antwerp, New York and Tel Aviv. Every step is an insurable peril.”

(source: Lloyd’s of London news)

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