WineLeaks #11 - Silver is better than gold at predicting fine wine prices
WineLeaks #11 - Silver is better than gold at predicting fine wine prices
New format, more charts and more market data.
Welcome to In the mood for wine — a weekly newsletter on wine for the next gen of wine lovers and investors. This is WineLeaks, a curated overview of the wine market, which will be with you every Monday at 10 a.m. (London time).
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You can find all the links to this newsletter’s past editions on this page, and, in case you missed it, a much-debated piece on Gusbourne’s ambitious wine Fifty One Degrees North.
The Market Take
📅 Week 38
🔴 Markets in a Minute
Inflation (CPI) 12-M to August:
US +8.30% / UK +8.60% / Euro +9.1%Interest Rates:
US +3.25% / UK +2.25% / Euro +1.25% S&P 500 (5D):
-4.65% Crude Oil WTI:
-6.99%Gold (5D):
-1.33% VIX (5D):
13.76%The biggest market news of last week was the collapse of the British Pound (£) following the announcement of fiscal changes by Chancellor Kwasi Kwarteng — the move amount to the biggest tax cut programme since 1972, in an effort to boost UK economic growth. The markets seem to find this economic plan unconvincing, suggesting that any cyclical support for the currency from the fiscal impulse is being out-weighed by concerns over the sizeable burden these plans will put on government finances.
On 20th Sept, the Federal Reserve (the US Central Bank) has demonstrated the most aggressive monetary policy — declaring war to inflation. USD ($) strenght is a direct consequence of this policy. An increase of the federal funds rate by 75 basis points to 3% to 3.25%. The Bank of England followed suit, adding 0.5 percentage points to the bank rate, to 2.25%.
Gold has always been considered the ‘safe haven‘ during inflationary periods and of market uncertainty. For all its complexities, what gold likes is a weak dollar, turmoil, and lower interest rates. Falls in the greenback mathematically raise the price of dollar-denominated commodities. Turmoil makes investors head for safe-haven assets, of which gold is by far the most long-standing. Lower rates reduce the appeal of its main competitor as a haven, yield-producing government debt.
However, when faced with aggressive interest rates rises and strong USD ($), investors fled gold. The CFTC reports that hedge funds and money managers have turned net bearish on gold.
Why does it matter for the fine wine market?
▪️Weakness in both GBP (£) and EUR (€) makes fine wine more attrative to dollar-denominated investors.
This translates in good news for 30% of readers of this newsletter (those US-based…) — if you are earning in USD ($) fine wine has become 15.9% cheaper than it was at the beginning of this year. In addition, your current fine wine stock has appreciated by the same amount!
Meanwhile, as we can see from the chart above, sterling is at a loss against both USD ($) and EUR (€), making fine wine less competitive for UK-based collectors and investors.
▪️Gold is both a ‘safe haven’ and a commodity. Physical assets, such as fine wine, can be good ‘inflation hedges‘ because their prices increases with inflation — but not such great 'safe havens’. That’s why, when trying to understand how fine wine prices will behave, it’s more helpful to look at silver. Silver has many industrial uses, accounting for more than half of annual demand worldwide. This means that economic growth can affect silver prices far more than it affects gold and that’s why it’s a better indicator of how fine wine (a notoriously cyclical commodity) is expected to move.
That being said, investors have reduced both their silver and gold have positions since April 2022.
🔴 Wine Market Update
(MoM = month on month, i.e. the change in the value as a percentage of the previous month's value.)
Livex 100 (MoM):
+1.3%Livex 1000 (MoM):
+0.1%Champagne 50 (MoM):
+2.1%Right Bank 50 (MoM):
+2.0% There doesn’t seem to be an end in sight to how much Burgundy names are increasing in value. While some names rallied as much as 33% MoM (Domaine Leflaive, Batard-Montrachet Grand Cru, 2014), the Burgundy 150 finished flat (MoM). Liv-ex has recently published the regional buying habits in the secondary market— and, when compared to 2019, Asia has decreased the share of Bordeaux from 66% of the market in 2019 to 36% year-to-date, in favour of Burgundy up from 16% to 37%.
Champagne continues to be unstoppable. Louis Roederer, Cristal, 2013 was the top performer of the month, followed suit by Cristal Rose, 2012.
Bordeaux’s right bank is still riding the wave of the St-Emilion reclassification, though Ausone and Cheval Blanc are dominating. In Pomerol, Lafleur is rising (2013, +26.7%, 2016, +18.7% and 2010, 13.2%), perhaps playing catch up with its neighbour Petrus. Lafleur doesn’t reach quite the same heights on the secondary market as Petrus. It could be because Lafleur doesn’t sell through the usual négociant system of Bordeaux, instead choosing to keep distribution controlled, selecting the importers for different markets to ensure they stay as close to the end consumer as possible.
Wine Offers
🔴 ‘The Treasury: Finest Wines from a Peerless Collection’ (christies.com)
On 29th September at 10.30 am, Christie’s will hold in London an auction called The Treasury. “This impeccable collection has been collated by a wine lover over many years from merchants and auction houses.”
New Wine Reports
🔴’2005 Retrospective: extraordinary quality’ (janeanson.com)($)
Back in August, The Wine Independent published the first piece of the “Retrospective“ series, authored by Lisa Perrotti-Brownn MW, which can be found in WineLeaks #3, regarding the 2005 vintage.
Jane Anson released her views on the same vintage — with two 100-score wines (Château Haut-Brion and Château Mouton Rothschild), but more interestingly, her ‘one wine to open now’, with a shortlist that included Malescot Saint Exupéry (95), Issan (96), Calon Ségur (96), Montrose (98) and Domaine de Chevalier (97).
Feedback
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