Diamond Blog

The popularity of diamonds through the ages and their scarcity over time leaves some to treat these coveted gemstones as an investment, hoping for higher investment returns in the future. Since diamonds are a finite resource, diamond mining may eventually cease, which could cause a dramatic increase in price of these valued gems.

James Picton, a diamond analyst at W.H. Ireland, says diamond output from mines all around the world is likely to fall 2 percent by 2015, amid a 9% increase in diamond production in the past five years, Bloomberg News reported last year. Mr. Picton sees the possibility of a 30 percent growth in the value of rough diamonds in the next five years, adding that these gems have provided better returns than gold since 1948.

At the rate things are going, analysts expect good returns in diamond investment given the huge increases in demand and the imbalances in supply, Bloomberg says, citing Andrew Ferguson of New City Investment Managers Ltd. Although potential mining sites, particularly in Africa, remain untapped, developing these diamond deposits continues to be too dangerous to explore.

The main attraction diamonds have on people is its high value per unit weight, which makes it easy to store and transport.  A diamond a few grams in weight and that has high quality has potential to be worth as much as 100 kilos of gold.  Because of this extremely condensed value and portability, some people have used diamonds as a form of emergency disaster fund.  Some private owners are even storing up their coffers in anticipation of an increase in the intrinsic value of diamonds in the future.  But while some analysts encourage this trend, others throw in some words of caution

Diamonds, either polished or rough, aren’t as liquid as other investment vehicles, although they are convertible worldwide and can easily be moved around. Here are some factors contributing to the low liquidity of diamonds:

• the lack of terminal market
• its subjectivity to value-added tax particularly in the United Kingdom and the European Union
• sales tax in most developed countries
• high markups on diamonds, particularly those sold in retail. This is due to high overhead costs in operating a retail jewelry store.

The absence of terminal markets for diamonds contribute to their low liquidity because diamonds are infinitely variable, rendering it difficult to establish a standard quality system for them to be tradable. A specialized expertise is also needed to grade and certify natural diamonds, unlike the standards other commodities are subject to. Diamonds lack the degree of homogeneity that most commodities have that allow for an efficient market to operate. Because a diamond’s weight, color, clarity, shape, and proportion vary from stone to stone, some speculate that these precious stones are unlikely to ever become an effective investment commodity.

In addition, jewels are also subject to inflation, meaning they appreciate at about the rate money inflates. Diamonds are not exempt from this. The growing popularity of synthetic diamonds also presents a threat to the value of polished diamonds as a long-term investment.

As noted above, there will always be some investment potential in diamonds. But before you start hounding the market for these precious treasures, keep these things in mind:

1. Scout for Rarity
It is worthwhile to invest in diamonds that are rare enough because the market pays a much bigger price for their scarcity. If possible, monitor diamond prices based on the 4Cs: carat, clarity, cut and color so you can gauge how much the diamonds you intend to buy (and sell) are actually worth.

2. Think Round
If you’re buying diamonds for resale, round diamonds are your best bet because they’re the easiest to turn around. But always steer clear of inferior diamonds. You’ll find that they’ll be much harder to sell at a higher price than the high-quality ones.
3. Skip Retail
Euan Stuart of Money Week suggests going directly to the source rather than dealing with jewelry retailers in order to avoid the high markups.
4. Large Rocks
Go for larger, flawless or internally flawless diamonds with more than 0.5 carats when investing. Bigger is better in this case. It is also a good idea to have a lab report done so that you can attach this to your price.

5. Color Your World
Naturally colored diamonds may be rarer and more valuable than the white ones, so it may be wise to get a hold of these.

Diamonds continue to seduce people with their unmatched quality and timeless elegance. From loose diamonds to rings, necklaces, bracelets and other fine jewelry, the hardest mineral known still draws a cultic following to this day.