Investing In Diamonds: Tickled Pink

 

People often ask me whether diamonds are indeed a good investment.  There seems to be quite a bit of controversy over this issue in the marketplace and unfortunately, there is no simple answer.  Recent fluctuations in global currencies have lead investors to put their money into commodities such as gold and silver.  However, gold prices are at an all time high, which makes it a precarious investment at best.

There are several factors that make diamonds a worthwhile alternative to commodities as an investment.  They are small and easily stored and transported.  Furthermore, natural diamonds (see my post here for an explanation of the differences between natural and synthetic diamonds) are a limited resource that will one day be depleted–this fact alone ensures that diamond prices will increase.

However, there is a wide range in color, clarity and cut of diamonds, making some a better investment than others.  If you purchase a 1/4 carat, M-color with significant inclusions (SI clarity), that’s wonderful if you bought it for aesthetic reasons, but don’t delude yourself into thinking it’s an investment that you can eventually take to the bank.  The overarching rule of thumb is: the rarer the diamond, the more it will appreciate.  A recent article in the Financial Times provided the following figures:

Polished diamond prices have grown 100 percent since 2004.

Since 2001:

Prices of 1/2 carat diamonds have risen by 49 percent;

One carat diamonds have risen by 88.9 percent; and

Three carat diamonds have gone up 238 percent.

Furthermore, prices in pink diamonds can be 20-50 times the price for a white diamond of the same size and quality.  The reason for this is again due to supply.  The Argyle mine in Western Australia has produced 97% of the world’s pink diamonds.  It is estimated that this mine only has 10 years of production left before it becomes completely tapped out and as it is, pinks only represent 0.01 percent of the mine’s production.  This means that prices of pink diamonds are soaring and once the mine is depleted, pink diamond prices will be astronomical.

The 24.78 carat Graff Pink diamond, sold for $46.2 million at auction in November 2010.

For anyone who has an eye towards investing in diamonds or those who are getting engaged and would like to see their diamond increase in value, I would focus on quality (clarity, color and cut) and size when purchasing a white diamond, and on color when purchasing a pink.  With respect to pink diamonds, the richer and more intense the color, the more valuable it is–clarity is irrelevant for the most part.  Not everyone has access to a pink diamond, but if you do, I would snap it up before prices get any higher–there is no ceiling in sight.

Big Kiss and Bigger Diamonds,

JZP