where to put your money strategy
For the last 2 months, auction results from Sotheby’s, Christie’s and Bonham’s have been making big headlines. Christie’s set a new world record when it auctioned off in excess of $100 million of diamonds at its Magnificent Jewels, where the “Princie Diamond” a 34.62 carats pink diamond was sold for almost $40 million. Bonham’s also had a unique auction of over 180 items of fine jewelry in its New York City sales room including a 5.30-carat old cushion shaped natural deep blue diamond set in a ring for $9.5 million.
A Short Historical Perspective
For more than 100 years, DeBeers Consolidated Mines, Ltd. of South Africa has been the undisputed ruler of the diamond market and, over the years, deliberately manipulated the diamond market as a strategy to put their company on top and successfully snagged over 85% of the market. In actuality, white diamonds aren’t as rare, nor were they always as popular, as they are today, but because of deliberate marketing strategies developed in the 1940’s, De Beers created an image of the diamond as a “must have” item with their “a diamond is forever” campaign. The diamond instantly became the iconic image of social status, love, and romance.
De Beers also used its dominance of the industry to control the market value of diamonds by stockpiling the gems and releasing only small quantities at a time, thus keeping the market value high.
In the 1990’s, several events occurred that brought the mighty giant to its knees; including the discovery of huge mines in Canada, Russia, and the famous Argyle mine in Australia, and those companies breaking off from DeBeers. These discoveries made it difficult for the company to purchase all of the rough diamonds now flooding the market thus weakening its hold on the market. In time, more and more producers stood up to DeBeers, bypassing them by selling directly to the market and, by the late 90’s, the DeBeers cartel’s market share eroded to 60%.
For the first time in history, diamond prices are no longer manipulated and are now a product of true market forces, providing a long-awaited opportunity for millions of individual investors seeking safety and performance in our uncertain global economic landscape. Diamonds are finally coming into their own and have been legitimized as an investment asset.
Auction Results Making Big Waves
Auction results over the last 2 months, combined with results from the last 2 years, is a sign of strengthening, for diamond investors. The prices for high-end, large white diamonds and unique fancy color diamonds are rising due to increased demand. It seems that despite a deepening recession, colored diamond auction sales are on the rise. We are also seeing diamond prices comparable to those previously only seen with fine art collections. These diamonds are typically purchased for locking away in safe storage facilities, not for wearing.
What is Causing Diamond Prices to Soar?
1. The Price of Gold – Not a “Sure Thing” Anymore
Bad news for some is great news for others and the same goes for the collapse of gold prices earlier this spring. Those in the diamond industry have quietly applauded the drop in gold as it gives investors the opportunity to seek alternate investment opportunities and are hoping the time might be right for diamonds to become a recognized asset class and an alternative “safe haven” investment.
If approved by the U.S. Securities and Exchange Commission (SEC), an exchange traded fund backed by diamonds is anticipated to be introduced in 2014; supporters of the idea admit that they need to educate investors in North America on the advantages of diamonds as investments. People in the Americas, especially the US, typically see diamonds only as jewelry, not as a serious investment opportunity.
2. Investors with available cash are looking for new profitable investments
Investors are growing desperate as they search for a stable alternative to currency and gold investments as they have been undergoing turbulent times. Investors are predicting that diamonds have a promising future as a solid investment option since classically “safe” investments, such as gold, are not safe from the effects of worldwide economic turbidity, as witnessed over the past few months with the drop in gold values.
Diamonds are more sensitive to the demands of the consumer than gold, especially in the Far East, where gold is a part of the fabric of the culture. Diamonds are a different commodity and not as sensitive to the performance of currencies or economies.
3.High demand – short future supply
Studies conducted in mines around the world point to one sobering fact – diamond supplies are decreasing. The discovery of new mines has been decreasing and it takes time for new mines to become operational. Projections point toward a dramatic drop in supply followed by a rise in demand.
Investing has undergone a definite shift towards diamonds from gold, even though diamond prices have actually increased compared to that of gold. The growth rate in diamond jewelry is 40% compared to 25% growth in gold for the past year. (http://www.thehindubusinessline.com/money-wise/personal-finance/there-is-a-shift-to-diamonds-from-gold/article1471796.ece)
Many diamond investment experts see real potential for diamond investment to grow. With about 40% of the gold market dominated by speculators or investors, only about 1% of the diamond market consists of “speculative” activity. However, speculation does not equate to long-term investing. And even if diamond supply does remain static while the number of middle-class households grow worldwide, that isn’t to say that those middle-class consumers will choose to spend their new disposable income on diamonds.
Why Invest in Diamonds?
Why indeed…This is the first time in history that diamonds are now accessible to every wealth class, not just to the powerful and privileged.
The Diamond Decade
Investors may wonder why they should be concerned with activities in the diamond industry. Curiosity could pay off in a big way as allocating diamonds to your investment portfolio could be one of the best investments of your life!
While the United States is considered to be the world’s largest consumer of diamonds, it is expected that China, India, and Russia are appearing as top diamond consumers, a trend that is expected to increase in the upcoming years. China and India owe this diamond consuming trend to the tremendous growth of their economies, and a better standard of living, not to mention the fact that over 2 billion people live in these two countries; thus, record-setting diamond demand is anticipated to occur for years to come.
A study released by Bain & Co. In 2011 projects that the demand for diamonds will increase at twice the level of supply growth throughout the decade, a trend that experts are calling this the “decade of diamonds”.
Diamond supplies are projected to remain unchanged throughout the coming decade, thus, forcing prices ever higher. Current mines are pulling diamonds out of the Earth 24-7 and, even if a major discovery is announced, it will take at least 8-13 for production. This will, indeed, be the decade of diamonds.
For more, read this:
Not Only a Girl’s Best Friend but an Investment with Beauty
Diamonds may be a girl’s best friend, but it seems that the male segment of the population has been cozying up with diamonds as well.
Men are the primary movers of the$71 billion U.S. market for jewelry and this is not a result of gift giving, it is because men, as well as women, are shifting some of their assets into diamonds and colored gems as pure investments, attracted by jewelry’s portability and global appeal, experts say. Christie’s jewelry specialist Rahul Kadakia said several men had walked into his office lately, seeking advice on how to “invest $100 million in jewelry over the next five years – and they’ve done it.”Rarity, timelessness, small size, and ease of portability – just some of the reasons why diamonds are ripe to become everyone’s new best friend in the world of investing!
Factors that Affect Diamond Prices and the Market
The 4 C’s of diamonds – color, cut, clarity, and carat weight – are the first things to come to mind when discussing factors affecting diamond prices. While these are definitely the main factors, additional considerations include:
1. Time of the Year – The time of the year will most certainly affect diamond prices. If you are purchasing in February, due to Valentine’s Day, and November/December, because of Christmas.
2. Inventory – A finite supply of diamonds along with the amount recovered per year will make prices fluctuate from one year to the next.
3. Supply and demand of the market.
4. Rarity – Is the diamond white or a Fancy Colored Diamond? Fancies are much rarer than their white counterparts which strongly affect price level. For every 10,000 white diamonds mined there will be only one colored diamond and this is likely to be a light colored diamond – which is worth considerably less.
This means that intensely colored diamonds are going to surpass even the most impressive white diamonds. The rarity factor definitely comes into play here and it will have a powerful impact on what you pay if you want a loose colored diamond with intense color or a a light colored diamond. If you are shopping for color diamonds, keep this in mind as you budget for your purchase. In the past few years, the market for in mind that demand has grown and that means that supply is strained further than ever before, hence prices will therefore continue to rise.
“Diamonds are stable, high-yield investments, the values of which have the potential to withstand economic downturns, inflation and currency devaluations that directly impact the price of oil, gold or cash and become a hedge against inflation… Actually increasing and maintaining value in times of deflation”, this according to Smith& Barrow, a leading US-based active asset management firm specializing in precious mineral commodities.
Each market is different – China, a Case History
Investors currently dominate the jewelry market at this time and it is their taste and collecting habits of these investors that is determining the price points for all gemstones, not just diamonds.
Consider the Chinese market, reported by Forbes magazine, to be the fastest growing in the world and now the second largest for diamonds, with annual sales reaching $9 billion. Historically, the Chinese prefer gold and jade but are now reaching for the stars as industrial tycoons favoring flawless, D graded diamonds with zero defects. This typifies the Chinese pursuit of absolute perfection and these investors will pass up larger gems with small flaws to obtain a perfect specimen. Studies of Chinese purchasing behaviors show that people there are snapping up diamonds at a record pace making diamonds the fastest growing discretionary expenditure in that country.
In India and the Middle East natural pearls are the preferred precious natural commodities and is exemplified by a purchase in 2007 of 2 strands of pearls once belonging to the Maharajah of Baroda going for $7.1 million when the gavel dropped.
One needs to look no further than China to see how the diamond market is a consumer driven commodity, a fact that anyone interested in diamond investment should take keep in mind.
Bulls or Bears? How the Diamond Market has Fared, 2011 to Present
Two thousand eleven was one of the most successful years in the history of diamonds, as the growth rate for diamonds grew to 40% compared to 25% for gold, in 2010.
Mr Mehul Choksi, Managing Director, Gitanjali Gems, reported in a 2011 interview for the Hindu Business Linethat, in 2011, “There was a definite shift towards diamond from gold, even though diamond prices have actually increased compared to that of gold”.
Several key events occurred that were major developments for the industry.
1. Diamond Jewelry Sales Reach All Time High– Despite dreary economic forecasts, diamonds were particularly resilient as sales in all luxury categories hit an all time high. Bain and Companyforecasters predicted that diamond jewelry sales would return to pre-crisis levels by 2013, but, diamonds came back two years earlier than anticipated. Overall, 2011 saw retail sales of diamond jewelry reach a new high, growing 18% from 2010.
2. China and India Move to the Forefront of Demand Growth– China and India, buoyed by strong economic advances in both countries, accounted for most of the demand growth. Powered by strong demand, the diamond market in both countries is developing rapidly. The number of retail jewelry outlets is soaring, and a growing number of consumers are adopting the Western practice of giving gifts of diamond jewelry to celebrate engagements, weddings and anniversaries. Many consumers are coming to view diamonds as investments.
3.Continuous decline of rough diamond supply
Rough diamonds supply is decreasing. Problems in mines operated by De Beers and Rio Tinto caused a slow down in production and the Rio Tinto was hit by flooding rains in early 2011. Additionally, De Beers reduced its production levels in Canada and Botswana.
4. Double-digit growth of rough and polished diamond prices –Price increases occurred due to strong growth in demand and some production declines which contributed to price increases of 31% for rough diamonds and 24% for polished gemstones.
To summarize – we are almost half way through 2013 and from what we can see prices are continuing to rise, for rough and polished diamonds. Additionally, we can see that in the last few months the price of collection class (auction) diamonds keeps surprising everyone as they consistently bring high prices.