Bright lights and big sales

Both Christie's and Sotheby's must have been surprised that the market had held so well. When I called to check on pre-sale levels of interest, one of their specialists responded with the saddest word in the auctioneer's lexicon: "Quiet." Like everyone who watches a fragile art market, he had been anticipating the worst.

Each season for the past couple of years, the day of reckoning has been signalled, but has failed to arrive. If you're cash-rich, art seems like a safe option.

The clever money that has fled the stock market is worried about inflated property prices, and can't bear to languish on bank deposit. And there's a limit to the amount of gold anyone can wear around their neck. But the art market, once an index-linked follower of economic trends, now obeys its own rules.

Market forces are interesting not just for buyers and anxious artists, but also for gallery-goers, because they so often dictate the kind of art we'll end up seeing.

The post-1987 slump produced the on-yer-bike entrepreneurism of the young British artists, who went into warehouses and mounted their own exhibitions, that were, in turn, taken up by galleries which were not selling anything else.

Then came a rush of dot-commers with wads of cash, invading the salesrooms in jeans and trainers, Prada-clad art adviser in tow. They bought cutting edge - a reflection of the way they lived. Not for them the restrained good taste of 19th century portraiture.

So contemporary became the new Impressionism as auction houses realised they could make as much from a Jeff Koons as they once could from a Claude Monet. Sotheby's, 10 days ago, pulled in £22 million from Impressionist and modern sales, and £15 million from contemporary alone. Experts predict that, in just a year or two, contemporary will overtake Impressionist sales.

The latest research from Zurich shows a 26 per cent rise year on year in prices for a sample group of salesfriendly living artists. Two weeks ago, a Damien Hirst butterfly painting fetched close to £250,000.

Phillips de Pury Luxembourg, the third-biggest auction house, is pulling out of 19th century work altogether and moving operations from swanky midtown Manhattan to funky downtown Chelsea. The company is reinventing itself, streamlining and specialising in anticipation of a very different kind of market.

Now that the luxury-goods conglomerate LVMH has given up its stake, Philips is cutting costs and rethinking auction culture. Christie's and Sotheby's may offer top-price guarantees to seduce sellers and shut others out of the market, but it's a dangerous game.

Imagine offering a £5 million assurance to someone selling a Monet and it going unsold. The auctioneer has to pay out in full and is lumbered with dead stock that cannot be shifted for a couple of years. Suicidal guarantees have saddled the great houses with huge debts.

Phillips, having played and lost the guarantee game, cannot afford to play on. Simon de Pury, its chairman, admitted as much to me; his strategy is to make inroads in the contemporary niche market.

Christie's and Sotheby's raked in about £80 million between them at these recent sales, but from where I was sitting in crowded auction rooms, it was money hard won. On paper, the sales looked as if they had gone to plan, but there was hesitation in the air and down those crackling transatlantic phone lines.

I have developed the habit of taking a stopwatch into the saleroom - much to the bemusement of professionals - because I'm convinced that the pace of the sale is the best indicator of market forces and the mood of buyers. Normally, a sharp auctioneer can knock out 50, even 60, lots an hour. The increments belt along, and millions are bandied back and forth in a matter of seconds.

This season was different: the pace slowed down at times by a quarter. There were two distinct reasons. First, no one was bidding in the room, and telephone tag slowed things down. Secondly, those phone bidders kept shaving the increments, slowing down the pace of the price by offering exasperated auctioneers a meagre £1,000 a time, rather than the expected leaps of five times that amount - just to stay in a game now played on the tightest of margins.

A battle was being fought at one remove; all the action was away from the room. In the current political climate New Yorkers weren't going to fly over to inspect the lots, so Christie's scheduled its day sale for 2pm rather than 10.30am to give the Americans time for breakfast at home before picking up the phone to bid. When an occasional hand was raised in the room itself, necks craned to see who was bidding. We all want to know who is still in the game. But the few visible bidders were acting on behalf of others. So we were none the wiser.

One respected collector indicated to me that he would not be bidding on anything this time, despite the quality stock and possible bargains on offer. "There's no one new in the market," he complained. "Everyone's recycling." He's right. The thrill of bidding, for this collector, is about the competition - new blood meeting old money - and much of that is falling away.

So the market survives one more season. But next time? The law of diminishing returns suggests we are coming to the end of the back-toback, buy-to-sell cycle. The best of the "turning" and profit-taking has gone, and the contemporary collectors have stocked up on the prizes they missed first time round. This does not produce the growth the market needs.

Not only are we looking for a new generation of artists, we're desperate for a new wave of collectors.