Diamond Investing Part Two
When it comes to the price of diamonds, polished and rough diamonds do not have all of the desirable attributes of investment vehicles, including liquidity, homogeneity and fungibility so a grading and certification by recognized laboratories goes some way to redressing this. Weight and cutting proportions are important factors which can be precisely measured and which can make a big difference to the value of a diamond. These, plus colour and clarity, grades need to be determined by gemologists.
Most diamonds are sold by dealers retail and this encompasses a high mark up or premium. The difference between retail and wholesale can be up to 100 percent . This means that dealers are not going to be buying back diamonds over the price they have sold them but for considerably less in fact.
This means that if you want to buy to keep or buy and sell diamonds you will have to [purchase them at wholesale prices or less.
This is not very easy except that it is possible with a lot of searching and browsing. Auctions probably offer the best chance of this although it is likely that auctions, such as eBay for example, will have many poor quality diamonds and the price you pay will depend on factors such as perceived need and want for a particular diamond resulting in more energetic bidding.
Diamonds are not going to increase in price on the basis of increased rarity or even through the maintenance of existing monopolies simply because there is a surplus of diamonds and the existing monopolies are going to continue in order to keep the current price of diamonds maintained.
The larger stones are more likely to increase in value however with auctions, such as Sotheby’s and the ilk,. But this demands a high capital cost and is mostly out of the range of most people.
Probably the best way to invest in diamonds is simply buying stocks in selected diamond companies or mines. Which ones to invest in will depend on current conditions, the state and operating management of the mine in question and other general market factors. It will require some considerable study
And contrary to popular belief, diamonds are not forever. They very gradually revert to graphite, at a rate dependent primarily on temperature.
Currently and historically, the wholesale diamond price has been controlled by De Beers Group, with an estimated 45 to 50% of the market. The Australia’s Argyle Diamond Mine (owned by the Rio Tinto Mining Group) is the largest producer of diamonds by volume. Botswana is currently the largest producer of diamonds with mines operated by Debswana, a joint venture between De Beers and the Botswana government. However, over the last decade other producers have developed new mines, in Russia and Canada for example, challenging De Beers’ dominance (historically De Beers market share has been 80%). De Beers raised diamond prices three times in 2004 by a total of 14%.
In short, diamonds are a problematic investment. While it is easy to buy a diamond, it is not easy to sell one unless one is already an established diamond merchant.
There are firms that offer “investment-grade” diamonds for sale to the public but a prudent investor will ask for a written promise to rebuy the diamonds at or near the purchase price within a specified period and if such a guarantee in writing is declined then would not make the purchase.
Diamonds are basically not an investment item for the ordinary person. Stocks and shares really offer the only investment in diamonds worth looking at. Diamonds are really to wear and for use in industry.