Luxury Watches as a hedge against inflation

by Marc-Andre Schmid

The intrinsic value of luxury watches is driven by their scarcity, enduring demand, and function as portable repositories of value. Investment grade watches are characterized by brands having nearly decade-long waiting lists and artificially low production, with desired models oftentimes only being able to be bought after establishing a purchase history. This characteristic of the watch market, fueled by high-networth individuals, ensures a stabilization of the market under uncertain market conditions and volatility.

According to the Deloitte Swiss Watch Industry Study from 2022 to 2023, the amount of watch investors that would invest into a watch as a safeguard against inflation increased from 13% to 28%. High inflation rates, notably as the US inflation rate reached a peak of 9.1% in 2022, lead to long and sticky downturns in economic output, collectibles like luxury watches offered a stable value acceleration while the growth of the stock market has stagnated as shown by the Boston Consulting Group. Just as during the surge of inflation during the 2008 and 2009 financial crisis, the returns of luxury watches outpaced that of the S&P 500, fine art, real estate and gold.

 

Watches thereby show similar characteristics to gold and its inflation-hedging properties. Reflecting on the 1970s and 1980s underscores the importance of assets that show stable growth in times of inflation, as demonstrated by the performance of gold during that era. For instance, when the U.S. inflation rate soared to 11.35% in 1979, the price of gold reached approximately US$1,800 per ounce, marking a remarkable increase of approximately 6.2 times compared to the beginning of the decade. With luxury watches sharing features with gold, notably it’s scarcity and value upheld by watch brands that have been building their reputation for centuries, they spend stability in crisis.