South Sea and Tahitian Pearl Auctions

Someone posed this interesting question to me last week. How do auctions work? I guess I’d taken for granted that the workings of a pearl auction were understood. Well, duh! Of course they aren’t. There are not many pearl lovers who’ve had the opportunity to see a real auction take place.

Auctions are scheduled year round by producers from French Polynesia, Australia, Indonesia and some smaller producing areas (like Fiji). They are either organized by the producers themselves, or organized by an organization with vested interest in the industry.

Most pearl auctions are invitation-only. In other words, the organizers choose participants based on a lot of factors that vary from auction to auction. They are looking for volume-buyers for the most part. Invariably most of the buyers are from Japan, still the wholesale center of pearl processing today.

Auctions are usually broken into several days. This doesn’t mean sales happen on the final day. They happen each day. Winning bids are tallied at the end of each day and the winners are notified.

Lot sizes vary tremendously. A typical lot may have around 1000 pearls. The quality is rarely mixed, color may or may not be mixed, and usually sizes are mixed. Typical Tahitian lots may look like this:

· Lot One: Shape – R/SR, Quality – A/B, Color –Med-Dark, <8 mm – 21, 8 mm – 107, 9 mm – 285, 10 mm – 375, 11 mm – 185

The lot has a total of 788, round to near-round, clean to lightly spotted pearls with medium-dark bodycolor. The lot may have a reserve price, it may not. Well, it always has one, it just isn’t always disclosed.

There may also be some special lots consisting of strands or pairs. Robert Wan is known for selling small lots consisting of only one pair of matched pearls of extraordinary size and color. Paspaley offers small lots of extraordinary baroques. The vast majority of the lots, however, consist of what is known as Commercial Grade. These are the C and D grade lots that are used as Necklace Material. This is why the majority of strands, whether Tahitian or South Sea, have spots. The clean lots are primarily used for earring and individual-pearl pieces, or purchased by large South Sea or Tahitian pearl buyers like Pearl Paradise or Mikimoto, which sell direct to retail and/or wholesale, allowing for more of a margin.

Pearl auctions are a cash and carry business. Organizers expect immediate payment and there is no buyers remorse allowed. A non-paying bidder is sure to be black-pearled for life.

So why do some lots have disclosed reserves and some do not? Those that do not are organized in such a fashion that disclosed reserves do little to illuminate the undisclosed reserves. In other words, there is no disclosed reserve for a like lot. Organizers are hoping for the highest possible bids, and it is up to the individual buyers to determine the overall value of the lot based on current market standards. There is a lot of math involved here, ladies and gentlemen. Newbie buyers are few and far between.

Now, if you’ve made it this far through my post, you are in for a treat. I’ve got a little secret that most outside of the auction circuit are unaware! A large number of auctions today are nothing but a façade. They are a façade to prop up the prices of goods on the market. Auction prices are always high. But they always sell and selling prices are reported on in trade publications and via post-auction announcements. What the hell, right?!

The biggest dealings are done outside of the auctions, either with the organizers or with the producers. It is a “scratch my back and I’ll scratch yours”, sort of thing. Deals are done behind closed doors. Lots are sold pre- and post auction for the real market prices. But the selling numbers are never disclosed – only the volume. Multiply that volume by the average momme selling price at auction and voila! There are your “new” market prices. The auction was an outstanding success and now these are the published numbers processors can show their wholesale customers!

So for all you pearl buyers that have ever wondered why lots going for $20 per gram out of Papeete may have a reserve price of $35 when on auction, now you know why.