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The Value of Diamonds as an Investment compared to Art and Property

By 20.08 September 20th, 2018 No Comments

In today’s volatile markets some investors prefer tangible hard asset investments such as diamonds, property and art to preserve value in their portfolios instead of money in the banks. Diamonds are the easiest form of wealth transfer all over the world. The global diamond market is vast with new investors coming in from areas such as Russia, China, India and Latin America where the wealthy citizens preserve their wealth in hard assets, especially where currency is volatile. This market is complex and requires much research before investing in loose diamonds, as the value of diamonds as an investment has changed significantly since De Beers lost its monopoly when several new diamond fields were discovered in many countries around the world. Russia, Botswana and South Africa are the major producers of excellent quality loose diamonds, while Australia produces the most industrial diamonds.

Each diamond is unique as is a piece of art, and diamonds, without doubt, are the most coveted of precious stones to own. From an investment point of view, the rarer the diamond with high grades, the higher the cost. They retain their value and over a period of years may yield many times the original cost. The key aspects to look for regarding an investment in loose diamonds are price transparency, quality assurance, transaction costs and liquidity. Because the investment in loose diamonds requires large monetary resources, potential investors need to research all the pros and cons prior to acquiring these magnificent gems.

Lapidary is the art of cutting, shaping and polishing loose diamonds, a skill only attained after years of practice. Loose diamonds become more expensive after undergoing these processes and only the best cutters undertake the cutting of rare and exceptional stones. Bear in mind that rare stones merit special handling as opposed to standard stones. The best loose stones for investment are natural-occurring rare stones which can command large prices when resold, but sometimes it can be difficult to assess the value of individual loose gem-quality diamonds, complicating the investment value. To avoid this, ensure that any diamond that is bought has been assessed and standardised by a reputable grading laboratory such as the Gemological Institute of America. In order to provide a safe investment only diamonds of more than one carat, and preferably three carats or more, should be considered. Large loose diamonds will go up rapidly in price and this will hedge against the downturn in international equities markets.

Precious metals are sold according to a universal world price but this does not apply to diamond sales. Diamonds are graded based on the Four Cs which are integral to a diamond’s value viz cut, clarity, colour and carat weight, all of which affect the value of each loose diamond. Fashion is fickle and marketing aspects may influence price fluctuations which make it difficult to have a uniform pricing system. As an example, chocolate diamonds have replaced pink diamonds as being the current fashion stone. Fancy coloured loose diamonds are extremely durable and have a proven record of being secure investments if they are rare collectable stones, based on limited supply and great demand which will increase as new world economies grow.

One factor affecting the investment of diamonds which contributes to the low liquidity of diamonds is the lack of terminal markets, as well as their being subjected to value added tax in many countries. These reduce their effectiveness as an investment medium. On the plus side, a diamond of excellent quality weighing between 2 and 3 grams can be worth 100 kilograms of gold! Over the past ten years the value of a typical five-carat diamond has increased by 150%. As an emergency funding factor its condensed value and portability make it the perfect investment, especially when seeing the financial crises that have hit banks world-wide. Supply and demand work in favour of the investors and add to driving up prices for these rare commodities. China and India are seen as the countries where enormous new wealth is emerging.
Globally, investment diamonds account for less than 5% of the total value of polished diamonds. Diamond investments will always be risky and questionable, but when compared to investing in property or artworks, they possibly come up trumps. The medium term outlook for loose diamonds looks strong as they have intrinsic value and ‘diamonds are forever’ as they have held their value better than more volatile investments such as property and art.

Three ways for investing in loose diamonds are to buy the stones through a diamond trader and keep them to sell at a later date; buy shares in a diamond mining company; or invest in diamond funds.

Contrasting diamond investments to those of art and property, both the latter are volatile depending on various factors such as the political climate and although artworks can be portable, property is not. An added asset to the investor in loose diamonds is that diamonds are not subject to cartel control and are unregistered, private assets.

Valuable art is rare art. The art market is fickle and choice of art pieces also requires knowledge and research. Art is a long-term investment which can fall drastically during a recession. The value of an artwork is its rarity so it is of paramount importance to obtain an original piece and not a reproduction. It can be extremely difficult to spot the difference. Regrettably authenticity does not guarantee the rarity of any piece nor its importance in the art world and appraisal by an approved dealer should be done. Art is certainly an asset but may not necessarily have investment potential.

Property has always been the cornerstone of wealth all over the world. Real estate is tangible and is an investment strategy available to anyone with some financial resources.
In South Africa the purchase of property is an investment option that offers relative stability. There is a shortage of good housing and any investment will probably provide a high return. Many of the buyers are foreigners which stimulate this economy and the rental market is vibrant, as well as South Africa being a top holiday destination with a favourable exchange rate. Due to the housing shortage, there is a high growth potential, also due to the development of a strong middle class.
Overall it would seem that an investment in loose diamonds is most likely to retain its value in years to come rather than art or property which are far more volatile.

 

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