About 99 per cent of all polished diamonds are ultimately set in jewellery and that jewellery is sold, accompanied with the age-old message of eternal love, to adorn a woman. Those who bought the diamond jewellery for a loved one, do so because they want to invest in the relationship as they believe that it will enhance the bond that they share with the person. However, there is another aspect that remains unsaid is that the diamond jewellery will retain its intrinsic value. Therefore, whether the choice of buying diamonds is emotional or rational, the underlying decision is one based on the value of diamond and the diamond jewellery purchased.
In some cultures, jewellery is bought because of lack of trust in the banking system. In some countries, more than 10 per cent of the public wealth is invested in ‘portable’ assets like jewellery. For example extensive ownership of gold and diamonds enabled many ethnic Chinese to escape from Indonesia during riots there in 1997. Historically, women have often viewed their jewels as security.
Is it therefore surprising that investors are starting to view diamonds as a new and attractive alternative investment and as a low maintenance investment that can be traded all over the world? After all, investors are seeking hard assets in the face of the ongoing market turmoil. With gold climbing to record highs in the past year, many investors have been looking to diamonds as another viable alternative. Fact is that investment diamonds gained 20 percent in 2010 and on a risk-adjusted basis, investment diamonds outperformed the commodities market.
We asked Ya'akov Almor, an Israel-based industry consultant and strategist, what does he think about diamonds becoming an item of interest to investors? "Let's look at the performance of polished diamonds in the past decades," said Ya'akov, adding, "Those long enough in the industry will want to remind readers of the infamous crash in diamond prices in the 1980s. This crash, however, was the result of speculation that occurred within the diamond trade itself, and the hard lessons that have been learned since have changed the face of the diamond industry."
It is hard to forget the global economic meltdown in 2008, but it since then the term; ‘investment diamonds’ is doing the rounds more than ever before. Investment diamonds are more heard of in the alternative investment market. Wikipedia defines alternative investment as "an investment product other than the traditional investments of stocks, bonds, cash, or property. The term is a relatively loose one and includes tangible assets such as art, wine, antiques, coins, or stamps…" and, yes, also diamonds.
About 99 per cent of all polished diamonds are ultimately set in jewellery and that jewellery is sold, accompanied with the age-old message of eternal love, to adorn a woman. Those who bought the diamond jewellery for a loved one, do so because they want to invest in the relationship as they believe that it will enhance the bond that they share with the person. However, there is another aspect that remains unsaid is that the diamond jewellery will retain its intrinsic value. Therefore, whether the choice of buying diamonds is emotional or rational, the underlying decision is one based on the value of diamond and the diamond jewellery purchased.
In some cultures, jewellery is bought because of lack of trust in the banking system. In some countries, more than 10 per cent of the public wealth is invested in ‘portable’ assets like jewellery. For example extensive ownership of gold and diamonds enabled many ethnic Chinese to escape from Indonesia during riots there in 1997. Historically, women have often viewed their jewels as security.
Is it therefore surprising that investors are starting to view diamonds as a new and attractive alternative investment and as a low maintenance investment that can be traded all over the world? After all, investors are seeking hard assets in the face of the ongoing market turmoil. With gold climbing to record highs in the past year, many investors have been looking to diamonds as another viable alternative. Fact is that investment diamonds gained 20 percent in 2010 and on a risk-adjusted basis, investment diamonds outperformed the commodities market.
We asked Ya'akov Almor, an Israel-based industry consultant and strategist, what does he think about diamonds becoming an item of interest to investors? "Let's look at the performance of polished diamonds in the past decades," said Ya'akov, adding, "Those long enough in the industry will want to remind readers of the infamous crash in diamond prices in the 1980s. This crash, however, was the result of speculation that occurred within the diamond trade itself, and the hard lessons that have been learned since have changed the face of the diamond industry."
In the same blog, Rapaport gave investors some pointers that urge them to assure they line themselves up with diamond industry experts.
"…you need to connect with an expert that can give you direct access to international dealer prices and markets. You also have to confirm the quality of your investment diamond through independent third party grading and expert confirmation. It is important that you establish a relationship with a trustworthy investment diamond expert that can advise you about timing, ensure quality control and handle your transactions," Rapaport wrote.
In a recent article in the Financial Times, Alex Waldman of the Waldman Diamond Company Group, a company that operates an online diamond investment portal, explained how investors get the maximum benefit of a diamond company's expertise while offering a model that investors can identify with.
Waldman Diamond Investments works with wealth management firms and brokers targeting investors interested in high-quality diamonds of a carat or more. Via its online portal, investors can resell their diamonds to others on an open marketplace without having to discount them by selling to a diamond wholesaler or jewellery retailer. Waldman holds its investors’ diamonds in high-security, segregated bank safes in Hong Kong, Israel and New York and also arranges insurance, shipping and storage. In the same article, Waldman, says, “Clients either take ownership of the physical stone or use the services we offer that make our investment diamonds as close as possible to other financial instruments.”
Andre Valery Bordes, CEO of Academy and Finance of Geneva, a wealth management conference company, who was quoted in the same article, said that he expected investors to seek out more information. “As someone who is very closely connected to wealth management and investors, during the past years, interest in high quality polished diamonds as an alternative investment asset has grown significantly. However, investors like hear more and that's why we're now looking at organising a stand-alone conference dedicated solely to investment diamonds," he noted.
But not all industry bigwigs consider diamond investment as a trend.Eyal Atzmon, CEO of European Quality Circle, an Antwerp-based organization that helps retail jewellers get together and to join buyer groups for gems, diamonds and jewellery said, "The old adage says that there's nothing new under the sun, and that also true for diamond investments. Of course, the insertion of diamonds as assets into an investment portfolio may be innovative, but no one would have considered it if diamonds weren’t already viewed as objects that carries a high, lasting value!"
There are various latent issues in the industry that make a private investor difficult if not impossible to invest in diamonds. Waldman Diamond Investments shared few of the issues that investors need to pay attention to:
Lack of public market Traditionally, diamond trading is restricted to members of one of the 28 diamond exchanges worldwide and this has impeded on the transparency of the trade, barring access to individuals. Any private buyer would therefore pay between 30 to 50 per cent mark up when purchasing a diamond or diamonds. In addition, anyone buying for investment purposes would have a hard time re-selling them in the wholesale market, where traders would offer significantly below the retail prices that private investors paid.
According to Martin Rapaport’s ‘Diamond Price Statistics Annual Report — 2011,’ every $1,000 spent on a five-carat diamond in the year 2000 would have returned $1,645 in 2011. It is not possible for a private investor to do this by himself. He needs a vehicle and there are a number of diamond investment platforms in the market that say they will do the job for them. But while there are a number of diamond investment platforms active only a few diamond industry insiders, that is, diamond dealers who have an intimate understanding of the diamond market, offer investors a direct access to polished diamonds.
The complexity of the asset
Unlike precious metals, whose current list prices are easily looked up, polished diamonds prices are not determined by a single price list, nor can an exact price be set. This is due to the market prices that are very much dependent on supply and demand at any moment. Also, as no two diamonds are alike, each polished diamond needs to be graded in order to assess its characteristics and its inherent rarity and therefore value. As such, for private investors, it can therefore be very difficult to keep track of all these variables.
Taxes, Shipping, Insurance, Storage
Taking ownership of polished diamonds is often more complex an issue than one may think. In some jurisdictions, keeping or importing loose diamonds may incur significant duties and tax liabilities. Shipping diamonds, as well as insuring them and storing them in high security facilities, will also run up costs. All these issues constituted barriers many an investor would not wish to tackle.
All the above issues need to be addressed and all a.m. barriers need to be removed before an investor will want to consider diamonds a an alternative investment. The platform constructed by a company like Waldman Diamond Investments, which no doubt soon is to be followed by EQC and others, have turned investment diamonds into a financial instrument that investors can understand and appreciate.
In India, the practice of diamond grading has widened the investment opportunities in the traditional diamond industry. Diamond grading is important as it takes the speculation aspect out of the evaluation, that is, the pricing of a diamond. Experts suggest that one should insist on a diamond grading report for any stone one buys, but particularly those above 0.20 carats or 20 points. For smaller stones, Indian producers and dealers have a wide choice of reputable Indian diamond grading labs. Of course, for larger stones, international labs such as the Gemological Institute of America (GIA), HRD Antwerp, the International Gemological Institute (IGI), and the European Gemological Laboratories (EGL), are also an option.
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