Investing

Are Diamonds Forever?

diamond

Photo: (clagnut)

Famous diamonds like the Hope from India, the Yellow Tiffany from South Africa, and the Williamson Fancy Pink inspire the imagination and are so valuable they seem almost like fictional objects of desire. Their size can leave you in awe and you can practically go blind from their beauty when in their presence. But diamonds can also be a practical investment. In markets where inflation rates have soared; investors have sought out diamonds as a way to put a hold on the value of their currency. The wealthy have used their diamonds to get them through tough economic times such as during WWII and the Asian economic crisis of 1997. In our current economy, investing in diamonds is paying off for many.

A Rich Man’s Game

According to the international diamond wholesaler Ajediam, prices for diamonds have increased on average 15% each year since 1949. However, investing in diamonds comes easier to those deep-pocketed individuals with the extra money to spare. Capital requirements for diamond investing is high and most new investors are already millionaires. The price of a premium cut 1-carat diamond can range from $14,000 to $25,000 depending on the quality. Diafon.net and Ajediam.com have graphs and current prices on diamonds.

Determining Value

The value of a diamond is based on the 4 C’s (Cut, Clarity, Color, Carats). Cut refers to the way a diamond has been shaped, its faceting pattern and its polish or surface finish. Clarity or purity is a diamonds’ ability to let light in and reflect its brilliance. For example a diamond with a clarity grade of LC/ IF has no internal or external spots so it is valued higher than a stone with minimal flaws. Color is also a factor. Most diamonds are white or colorless but the most rare and priciest diamonds are the naturally colored or “fancy” stones. Carat is the weight of the stone. In contrast to the 1-carat mentioned earlier, a 3-carat stone could be priced at $40,000 or more depending on its distinct characteristics.

Whether or not man-made diamonds like cubic zirconia and moissanite have a negative affect on the value of natural diamonds is debatable. These synthetic look-a-likes can be created at much lower costs than a real diamond and although fakes are of increasing quality and size, the inherent value of a true diamond would be difficult to surpass. Diamonds are the hardest natural substance known. They are not only used for jewelry but also in manufacturing. Some examples include their use in lasers, x-ray machines, and to enhance the sound of those fancy speakers you just splashed out on.

Diamonds as an Investment

It may sound contradictory but a big part of the allure of diamonds for investors comes not from their romantic symbolism but from their practicality. Diamonds are easy to carry. An investor can easily carry thousands or even millions of dollars worth of diamonds in a small pouch (we’d suggest they also travel with an armed guard). Also, their value is not directly linked to the stock market, making them an ideal financial instrument that holds its value in times of recession and increases in value during inflation. In this way a diamond investment is very similar to a commodities investment.

According to Pastor-Genève, a worldwide wholesale dealer of high end colored diamonds, the key to making a worthwhile investment is to buy the most rare and largest diamond you can find. Naturally colored yellow, pink, sapphire blue and green diamonds occur as a result of a chemical reaction with other natural substances in the earth and are more difficult to come across. Due to their rarity, these are considered the most valuable, even more so than white diamonds.

Diamond investing, for all its appeal is not without its drawbacks. Diamonds are easy to buy but not easy to sell. Large-scale frauds and scams have made jewelers apprehensive and the most rare and high caliber diamonds have a better chance of being purchased. Not to say your 1-carat diamond will not be purchased, it’ll just take longer. Selling your diamond at a profit also will take time. A rare blue diamond can take at least five years to double in price and a yellow diamond can take eight to 10 years. In addition, supply and demand play a key factor on selling power. According to Pastor – Genève, the ration of white to colored stones is 10,000 to 1, so if you have a white stone, chances are it will be more difficult to find a buyer for it.

Tips

When shopping for diamonds always buy them at wholesale or near wholesale prices. If the price of the diamond is five to 10 percent more than the cost, keep looking for a better deal. Go to a reputable dealer who sells GIA certified diamonds. GIA is the Gemological Institute of America, a non-profit institute considered a foremost authority in gemology. Diamonds certified by EGL USA Group, the world’s premier independent gemological laboratory is another option.

Diamond Funds

Funds that capitalize on the long term value and appreciation of diamonds are another way of investing in these precious stones but you’ll still need a lot of money to get in the game. KPR Diamond Fund requires a minimum investment of US$ 250,000 and the minimum investment required to participate in the Diamond Circle Capital Fund is $1 million per individual stone. Like the KPR Fund, the London based Diamond Circle Capital PLC’s goal is to produce long-term appreciation of its portfolio of diamonds. To create this appreciation, the company invests in large white and rare polished, high quality diamonds.

Diamonds have proved their worth as a stable commodity that maintains its value in the worst of economic times. While, there’s a bit of a catch 22 here in that you need to be fairly wealthy to begin with in order to invest in diamonds, you can get started for just a few thousand dollars and rest assured that, in the long run, that investment has a very good chance of paying off.