As one of the most concentrated forms of wealth on the planet, diamonds make an excellent investment. While precious metals like platinum and gold also have intrinsic value as investments, they are much bulkier and harder to store, requiring the serious investor to maintain a very large safe. On the other hand, a million dollars’ worth of diamonds is small enough to fit in your shirt pocket. This element of portability makes investing in diamonds completely private, as no one has to know how many diamonds you own.
The allure of diamonds, however, is not purely financial. Diamonds are associated with love and beauty, and have long been the symbol of matrimony. The diamond engagement ring is one of the most important purchases a couple will share.
Larger and Colored Diamonds
Larger diamonds, for example, three carats and over, are considered rare and have always been sought after, in part, for their exclusivity. Larger diamonds that have a unique color, such as Fancy Yellow or Pink, are even more desired and carry a high premium. As a financial investment, larger and colored diamonds have more than doubled since 2007.
Currently, these stones are commanding record prices at auction. At a 2014 Sotheby’s auction in Geneva, a record-breaking seven jewelry items set world-record prices. The Graff Vivid Yellow 100.09 carat diamond ring sold for over $16M, which was an auction record for a yellow diamond. At this same auction, a marquise-shaped Very Fancy Pink diamond weighing 12.07 carats outsold its pre-auction estimate, selling for almost $7.3M and setting a world record for price-per-carat for a Fancy Pink diamond (Sotheby’s Geneva, May 2014).
The value of diamonds continues to increase from year to year. One reason for this increase is inflation. It’s simply easier to print more paper than to mine more diamonds.
Supply and demand also figure into the steady increase in the price of diamonds. No new major diamond mines have been developed since the 1990s, and today there are only 30 major diamond mines in existence. The diamond supply in these mines are being depleted, and diamond production is estimated to decline by 1.9% a year by 2019 (Bain & Company, Global Diamond Report, 2013).
The growth of the Asian markets is also pushing the price of diamonds. Asia made up 8% of the diamond-buying market in 2000 and 13% in 2014, and by 2017 Asia is projected to make up 18% of the total diamond-buying market. In particular, India is a growing consumer of diamonds because of a blossoming middle class. With approximately 500 million new middle-class citizens by 2019 and with the trend in these areas shifting from plain gold wedding rings toward diamond engagement and wedding rings, the potential for new diamond buyers is exploding (Bain & Company, Global Diamond Report, 2013).
Return on Investment
While the price of diamonds continues to rise steadily, investing in diamonds is not a get-rich-quick scheme. Sales tax and high transaction costs can take a long time to recoup. However, there are times when diamond prices skyrocket, such as in times of economic instability when people want to invest their money into something tangible. In times of adversity, diamonds are portable wealth that can be stashed away for a rainy day. Although the diamond market will likely remain balanced through 2017, demand is expected to exceed supply from 2018 to 2023, supporting a long-term investment strategy in the diamond industry (Bain & Company, Global Diamond Report, 2013).