GENEVA — Gauguin must be rolling over in his grave.

The French painter, who fought all his life to be able to live off his work and ended up destitute and depressed, would be stunned to hear that just over 100 years after his death, his painting Nafea Faa Ipoipo (Tahitian for “When Will You Marry?”) has become the world’s most expensive work of art. Oil-rich Qatar made the acquisition in February for $300 million from Rudolf Staechlin, a retired Switzerland-based businessman and collector who had inherited it from his father.

But this stratospheric price is not just a one-off. It coincides with the unstoppable rise of art prices since the beginning of last decade. And there’s no shortage of examples, including the legal battle between Yves Bouvier and Dmitry Rybolovlev, in which the former is accused of having overcharged the latter, one of the world’s biggest art collectors. At the heart of this scandal are masterpieces such as Leonardo da Vinci’s Salvator Mundi, for which the Russian paid $127,5 million, Modigliani’s Nude on a Blue Cushion, also bought from the Geneva-based art dealer for $118 million.

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Modigliani’s "Nude on a Blue Cushion" — Source: Wikimedia Commons

This judicial and artistic affair also illustrates the difficulty of applying objective criteria to art prices. Four main factors can explain such a relentless rise.

The sustained boom in prices can first be explained by the ever bigger and wealthier clientele interested in works of art and their acquisition. According to the Billionaire Census 2014 study carried out by Wealth-X and UBS, the global billionaire population between July 2013 and June 2014 grew by 7%. In just one year, 155 people became new billionaires, taking the total to 2,325.

“Rich people used to be rich in terms of estate or assets, but not so much in terms of cash, like they are today,” explains journalist Georgina Adam, who writes for the Financial Times and whose 2014 book Big Bucks – The Explosion of the Art Market in the 21st Century explains how the sector has evolved since the early 2000s.

This growing billionaire population from developed or developing economies have money to spend and invest. For many of them, art — in the same way as luxury cars or prêt-à-porter — is an entry pass of a globalized way of life accessible through their wealth. To win these customers’ loyalty, auctions houses have made it their mission to pass on their taste for art.

The scarcer a commodity is, the higher its price rises. For art, this rule only applies in part. But to compensate for the declining stock of works from deceased artists, auction houses found the perfect trick.

In the 1970s, the works of art of ancient masters were being exchanged at the highest prices. Then, realizing that the offer was diminishing, auction houses largely contributed to bringing impressionism and modern art back into fashion in the 1980s and 1990s. But then again, the stock was diminishing fast. The best pieces disappeared in museum collections never to be seen again on the market, since works acquired by public institutions can normally not be resold (although there are exceptions).

“The source of growth for auction houses then became contemporary art,” says Georgina Adam. It was a real honey pot that offered the advantage of not being about to run dry. Most of these artists are still alive, producing and are even encouraged to produce so as to have enough supply to meet the demand. They frequent the stars and billionaires who collect their work, and themselves grow more celebrated in the process.

The guarantees offered by auction houses also contribute to the prices’ upward spiral. To be sure to have the best pieces in their auction blocks, auctioneers promise sellers ever higher minimum sale prices that they’re ready — and sometimes forced — to pay from their own pocket if the object is sold for less.

“Auctions houses did that a lot in 2006 and 2007,” notes Adam. “Then, with the crisis in 2008, few items reached the guaranteed prices so auctioneers had to pay the difference. Lately, they’ve started offering guaranteed purchase prices again, particularly through third parties — such as Qatar — who pledge to buy certain items for a price agreed to in advance.”

With such a system, the seller is assured to earn a minimum sum that guards against the object being “burned” during the sale by a low price or non-sale that could undercut its value forever.

After the 2008 crisis, investors looked for other ways to yield a profit. “Art turned out to be an interesting investment, attracting always more cash from those discouraged by traditional assets such as stocks or estate,” explains Anne Laure Bandle from the University of Geneva in her book The Art of Pricing the Priceless.

These new connoisseurs not only have enormous financial capabilities but will most importantly always be careful that the price of their acquisitions continue to rise, just like that of any other financial product.

Observers are wondering when the art prices will reach their upper limit. Some even predict that the art market today is “too big to fail” and that in case of a slowdown, its main actors will be forced to support it to protect their investments.

“I’m certain I will live to see a work of art be sold for $1 billion,” Francis Outred, head of post-war and contemporary art at Christie’s Europe, is quoted as saying in Georgina Adam’s book. His comment is equal parts enthusiastic and cynical, the perfect illustration of the current philosophy prevailing in the art market: It’s not about the work’s value but about its price tag.