Investing in diamonds

Analysis

Buying diamonds as gifts and as jewelry is a common practice, but investing in diamonds is not for the average person. After all, the most economically feasible diamond investments still require access to a tremendous amount of capital and high tolerance of risk.

Diamonds have been notoriously difficult to sell on the resale market at a profit; in order to make money, diamond investors need to find a buyer who is willing to pay more for their stone than they did. Nevertheless, diamond investments are being viewed as increasingly attractive as a result of recent trends that suggest a diminishing global supply.

 
MULTIFACETED INVESTMENT

Diamonds carry unique attributes that distinguish them from other types of investments. As a highly concentrated asset, diamonds are extremely portable and easy to have on one’s person at all times as jewelry or loose stones. Investing in diamonds also carries benefits of financial privacy and complete ownership. Diamond values are not directly linked to stock and bond markets. Diamond prices have increased an average of 15% each year since 1949, according to statistics published by diamond manufacturer Ajediam on their company website. “Diamonds do hold their value well,” Chuck Jaffe wrote in his syndicated column last December. “So long as the stone is real, it’s not going to zero like a company headed for bankruptcy.” International demand for diamonds appears to be on the rise, especially as an increasing number of high net worth individuals emerge in the Russian, Middle Eastern and Asian markets. The emerging middle class in China is expected to create a sharp increase in demand for diamonds and other luxury goods, according to an article in The Financial Post last June.

 
MINING THE DIAMOND MARKET

Diamond investments are often met with pessimism and, at times, downright condescension. Jaffe, for instance, wrote about diamonds in his syndicated column, titled Stupid Investment of the Week, last December. Diamonds may provide a terrific return as an “investment in emotion,” but “try to cash in a diamond for a profit and you have all sorts of trouble,” he wrote. But is investing in diamonds as imprudent as it sounds? Counter to what the skeptics might expect, institutional investors are beginning to enter the diamond investment market. Swiss firm Diapason Commodities has been raising money for the launch of its Diamond Circle Capital product, according to an article published in Investment Adviser last June.

The fund will only buy polished diamonds worth more than £506,000, or approximately $1 million. The product will be the first London Stock Exchange listed fund to invest in diamonds and trade them on the secondary market. The state of the diamond market is even more compelling. “Diamond supply is declining for the first time in 30 years and it is primarily happening in areas where they find rare colored diamonds,” Hershoff said.

The leading mine in Australia, which produces 90% of the world’s pink diamonds, saw a drop of 30% last year in supply, he said. An additional decline of 20 to 30% is expected for this year. How to invest in diamond? read full article (Nuwire Investor)

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