What is gold worth versus diamonds

Buying diamonds as an investment: opportunities and risks

Diamonds are not only fascinating, they are also repeatedly touted as a “solid investment”. Why is that and what are the arguments for and against a diamond investment?

Why are diamonds considered an investment at all?

Similar to gold, diamonds are considered to be a "currency in crisis"Protection of assets against turbulence in the financial markets. This is supported by their high mobility and compactness, among other things. Even six-digit capital amounts can be "moved" or stored in the form of a diamond weighing less than a gram.

Often times, diamonds are calledtouted as more stable in value than gold - Among other things, because there are no futures market contracts for diamonds that allow large-scale financial speculation.

A common argument in favor of diamond returns is a growing demand in the jewelry industry that onelimited offer facing. No major diamond deposits have been discovered or tapped for decades. The management consultancy Bain therefore assumes that the production of natural diamonds will decrease from 2018 or at most remain stable.

Note

Diamonds from the laboratory

In recent years, technologies have been developed to synthetically produce diamonds. The differences to natural diamonds are only visible to experts, but synthetic diamonds are usually cheaper and can potentially be produced without restrictions.

According to Bain, the consequences for the diamond market cannot yet be foreseen. Among other things, they depend on whether the jewelry industry can establish a distinction between natural diamonds as a "luxury good" and synthetic diamonds as "gemstones" in the perception of customers.

How can investors invest in diamonds?

Physical diamonds

Physical diamonds can be used atJewelers, pawn shops or numerous online platforms can be acquired.

The quality and value of a diamond mainly depends on four factors, which are called"The 4 Cs" are known:

  • Carat: The weight of the diamond. One carat is equal to 0.2 grams. The heavier a diamond, the more valuable it is.
  • Clarity: The degree of purity of the diamond, which is classified on a 15-point scale. The purer a diamond is, the more it shines and the more valuable it is. The highest possible level is "Flawless" (flawless).
  • Color: The strength of the tint of the diamond. In the case of white diamonds, the tint is classified on a scale that starts with D ("colorless") and extends across the entire alphabet to Z (clear yellow or brown cast). The more colorless a white diamond, the more valuable it is. Attention: for diamonds with special colors ("fancy colors") such as blue, pink or champagne, different criteria apply.
  • Cut: The quality of the cut and polish of the diamond. If a diamond has been perfectly cut, it shimmers in rainbow colors. The scale ranges in five steps from “excellent” to “inferior”.
  • The "additional C" is sometimes called Certificate called - the certificate that attests to the authenticity and quality of a diamond. If it is lost or if it is not recognized by other buyers, the market value of a diamond may decrease. International and recognized institutes such as the Gemological Institute of America (GIA) enjoy the most trust.

Unlike gold, there isno regulated market for diamonds and therefore not a generally recognized price index. Instead, there are several indices from private institutions, such as the price index of the IDEX diamond exchange and the RAPI index of the Rapaport Group. Some of these are only available for a fee.

Because private investors no direct access to professional diamond exchanges a sale can potentially involve comparative effort and time.

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Diamond stocks

Theshares diamond mining companies also offer opportunities to capitalize on the demand for gemstones.

Your performance also depends onother factors such as the entrepreneurial skills of management and political developments in the funding regions.

How has the value of diamonds changed in recent years?

According to the “Diamond Prices Index”, the value of diamonds is in recent years not - as is often suggested - increased continuously.

After a price rally in 2011 and 2012the price fell back to the starting level, where he temporarily leveled off. A downtrend began in 2019, from which the market has not yet recovered.

According to the consulting firm Bain, that was primarily for two reasons:

  • Political tensions between the US and China led to the fact that Economic worries arose among consumers and they bought less jewelry.
  • Through the increasing spread of online trading the diamond supply chain became more efficient. Traders saw less need to buy diamonds in advance.

So it turns out: The demand for diamonds depends on numerous complex factors from. The story that their scarcity must necessarily lead to an increase in value falls short of the mark.

What are the costs of diamond investments?

  • When buying diamonds, material and Manufacturing costs as well as the trade margin due. This creates a "spread" between the buying and selling price, which must be compensated for by increases in value before a diamond can be sold at the same price.
  • In contrast to investment gold, when buying diamonds the falls VAT.
  • There may be costs for one safe or the Storage in a safe deposit box.
  • If owners want to insure their diamond portfolio against theft, can additional insurance costs attack.

What are the risks for investors?

A diamond investment isspeculative, because diamonds generate no interest or dividends. The price depends solely on demand, which is difficult to predict. Although it is often suggested, a long-term increase in demand is not certain.

In possession of physical diamonds, there is aRisk of theft, which can possibly be insured against additional costs.

The diamond market is hardly standardized and relatively opaque.Dubious and overpriced offers are therefore not easily recognizable for investors. If the diamond purchased is of inferior quality, it can potentially not be sold at a profitable price.

There are alsoImitation diamonds in circulation, such as stones made from the mineral moissanite. If they are well made, they can only be distinguished from real diamonds with specialist equipment.

Advantages and disadvantages at a glance

Opportunities / advantages

  • The performance of diamonds will not directly influenced by the financial markets.
  • Diamonds offer potential through their material value an inflation adjustment.

What are the disadvantages and risks?

  • The price of diamonds has a certain volatility and can also sink.
  • Diamonds do not generate interest or dividends. Investors need to speculate on price increases.
  • To buy high quality diamonds is a lot of specialist knowledge required, as there is no regulated market.
  • Potentially high costs are incurred when buying, which must first be compensated by increases in value.

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