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Should You Invest In Diamonds?

It seems that Sean Connery and Shirley Bassey were right – diamonds really are forever. As Petra Diamonds, London’s biggest listed diamond miner, proved by increasing their year on year revenue by almost 50%, diamonds really are the most resilient substance, and market, known to man. Read on for five sparkling reasons why you should invest in diamonds.

DiamondsThe Diamond Market

Though prices fluctuate, the diamond market is remarkably tough. Historically the price of diamonds has proceeded in a very orderly way.  Editor’s Note: This orderliness is due to the influence of De Beers (see Footnote). Diamonds have performed extraordinarily well in times of high inflation, providing one of the most reliable investment returns on earth. Compared to debased fiat money diamonds can be considered as an important way to diversify your portfolio. From the perspective of personal finance, they really are a rare gem. With other markets not enjoying the same stability of the diamond market, it may make sense to diversify your portfolio.

There Is More To Diamonds Than Sparkle

When you picture diamonds you tend to see huge sparkling stones draped around a lady’s neck or proudly twinkling atop an expensive ring. However, there are many different diamond types and many different diamond colours and a large number of mining spots for these coloured diamonds are yet to be explored in the same way as clear diamond mines.

Diamonds Are New And Exciting

Diamonds are usually seen as a traditional commodity or investment given the amount of time they have been seen as an object of rare beauty and desirability. Though this is certainly true, the interest in new coloured diamonds is a modern twist on a vintage classic and is creating a real buzz in the rare stone industry.

Diamonds Have High Demand

The cornerstones of any investment are the levels of supply and demand and, given that it takes millions of years to produce diamonds, the supply of the stones is finite whereas the demand seems to only increase. Year after year, loose diamonds become harder to find as mines yield less and miners have to dig deeper.

 

Editor’s Note:

One problem with investing in Diamonds is that there is no Diamond futures exchange, no ETF’s and no independant encapsulation like PCGS has for Gold coins to ensure you are getting what you pay for. Because of the lack of a transparent market, the bid/ask spread is often horrendous… But all that being said, “According to Martin Rapaport’s “Diamond Price Statistics Annual Report — 2011,” every $1,000 spent on a 5-carat diamond 10 years ago would have returned $1,645 in 2011.”

So diamonds bought right have out performed most of the major markets including currencies and stocks.  The key of course is the “bought right” phrase. Buying diamonds for investment requires skill in determining  the 4 “C’s” Color, Cut, Clarity, and Carat. Recently a 5th “C” has begun appearing and that is Certification. Without expert knowledge of the first four, the fifth becomes even more essential. But remember a certificate is only as good as the company who issued it.

For more information on the 5 C’s.

Interestingly the most commonly known name in diamonds “De Beers” is actually not a company at all but a cartel much like OPEC is for oil. Way back in 1939, De Beers began an ad campaign that was designed to link diamonds with Love (and boost sales for cartel members). In 1951, they came up with the slogan  “A diamond is forever.” And like any cartel they have maintained tight control on supply so that the market is not flooded with diamonds thus driving prices down.

A company called Fusion Alternatives, is currently working on a diamond investment fund, and trying to convince other firms to launch diamond-backed ETFs.

6 Tips from Martin Rapaport to ensure a better probability of a profitable diamond investment:

  1. Only invest in diamonds examined and certified by the Gemological Institute of America or International Gemological Institute.
  2. Get an appraiser’s opinion on a diamond, making sure it’s appraised by current market price, and that the appraiser is a member of the National Association of Appraisers.
  3. Don’t get caught up paying a lot of money on insurance. Lock it up in a safe.
  4. Invest in polished diamonds, rather than uncut.
  5. Don’t buy diamonds with a greenish hue — they could be blood diamonds. Sometimes also called conflict diamonds, these kinds of diamonds have been mined in war zones and fund insurgencies or warlords.
  6. And, most importantly: Before you buy something, see if you can sell it.

Rapaport has developed a clearing house with auction services and a more transparent pricing system allowing buyers and sellers to come together in a more organized way.

At Fintrend.com we are not registered investment advisors and do not provide any individualized advice. As always, though, you should remember to consider every piece of investment information you receive, here or elsewhere, not as a specific recommendation, but as an idea for further consideration. We encourage you to do your own due diligence before purchasing any product, whether it is offered here or anywhere else for that matter, before purchasing. Please use your own judgment and carefully check out those products that interest you.

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