Fine wine sets a gold standard

Fine wine prices put in a dramatic increase in 2010 – with the benchmark Liv-ex Fine Wine 100 up more than 40% in just 12 months.

These rapidly-rising prices have stoked fears that the top end of the market is approaching bubble territory.

If we convert the sterling-based Liv-ex 100 into other global currencies, however, a somewhat different picture emerges.

When based in euros, the index only moved past the level set in July 2007 in October 2010, while in dollars the index remains five points (or 1.2%) off its high, reached in June 2008.

If we look at the yen, the results are even more dramatic: the index remains 29.7% off its all-time high. In yen terms, we are still a long way from a bubble.

And what of China, the current driver of global demand? Based on the dollar-linked Renminbi, the index sits 10% below its June 2008 high. For the Chinese, fine wine prices are still some way below historic highs. Only Lafite Rothschild and a handful of other brands (such as Duhart Milon and the First Growths’ second wines) have far surpassed their pre-2009 pricing.

The majority of the data used to calculate the Liv-ex Fine Wine Index is in pounds and euros (with London and Bordeaux remaining the leading hubs for trade buyers).

This suggests these results should be treated as indicative rather than definitive. Nonetheless these comparisons show that the rapid increases we have seen in London pricing are partly due to currency movements – or rather the depreciation of sterling since 2007.

With the Bank of England continuing to press forward with its quantitative easing plan, this is a situation unlikely to change in the medium term.

This can be seen if we base the index in gold, the classic store of government wealth.

With gold prices almost keeping pace with wine prices in recent years (even when measured in sterling), the trend since the tumultuous economic events in late 2008 has been broadly flat. In essence, fine wine has started to behave as a store of value.

It would seem that Sauternes is not the only liquid gold.

Fine Wine Monitor, taken from the February 2011 edition of the drinks business