Advantages and disadvantages: Diamonds as a shiny investment alternative?
You can read the most important arguments for and against investing in precious stones below.
Diamonds as a complement to gold and silver
Gemstones and therefore diamonds have at first glance no more than the first syllable in common with precious metals. Nevertheless, they should not be forgotten in a comprehensive look at the market of precious commodities, after all, the extraction and processing of diamonds is significantly more complex than silver - and also the appreciation in the general public is in no way inferior to the classic precious metals: With a sparkling diamond, the gold chain becomes really beautiful and valuable.
Weight, color, purity and cut determine the value
It is therefore not surprising that diamonds are also suitable as an investment. More and more investors are discovering that the market for diamonds is not as complicated as it seems at first glance. Four characteristics in particular play a role in their valuation: the weight (measured in carats), the color, the clarity, and the cut.
Diamonds bundle a lot of wealth in a small space
For some years now, the global sovereign debt crisis has caused a veritable run on tangible assets. But while gold and silver are the talk of the town, investment in diamonds is still an insider tip. Yet investing in diamonds offers many advantages: Diamonds are stores of value in the smallest of spaces and offer a particularly high "concentration of value"; they can therefore be transported easily and inconspicuously:
No room-sized vaults are required for the storage of individual stones; a stable and inconspicuous mini-value cabinet is already sufficient. There are no reporting obligations for diamonds, and acceptance is guaranteed internationally. With an investment in diamonds your fortune is easily and inconspicuously transportable: While 100,000 € correspond to several kilograms of gold and silver, which can hardly be carried without great exertion, one receives for this amount "only" a few high-quality diamonds, which weigh only a few grams and can be inconspicuously carried, for example, in the trouser pocket from point A to point B.
Demand on the world market: Emerging markets take hold
An investment in diamonds as an alternative to gold and silver is worth considering, especially as a result of the current precious metal boom. While the precious metals market is increasingly becoming a popular investment, there are still no large investor masses in the diamond market. Nevertheless, the demand for diamonds is steadily increasing, even during the financial crisis luxury items are in demand - especially in boom regions such as India or China, but also Russia, Brazil and Mexico. These strong markets and the development of a new middle and upper class support the value development of diamonds and ensure that they are no longer a special product for professional dealers. Solid demand is also coming from the USA - the most important market for diamonds worldwide has not lost any of its strength. The loss of confidence in regional currencies is also ensuring that more and more people are exchanging their money for diamonds.
Limited raw material deposits cause supply shortage
The increase in investment demand is being met by a development on the supply side that is likely to support the value of diamonds even more in the future: Raw material deposits are limited, many mines are already fully exploited, and new mineral resources are no longer being found on the scale required. And in the coming years, numerous large mines are expected to be shut down shortly, because mining is no longer profitable and more and more effort is required to extract the small stones from the earth.
Performance: The trend is upward
The increasing scarcity of diamonds has ensured that prices have risen constantly over the long term since the 1960s: according to the "Antwerp World Diamond Centre", the price of single carats rose constantly between 1995 and 2002, experienced a sharp increase between 2003 and 2005, and only fell slightly between 2005 and 2007. After that, however, a renewed upward movement has begun. In addition, diamonds are not as affected as gold, silver and other precious metals by fluctuations in value on the global financial markets - while the volatility of gold and silver has increased sharply in recent years, the performance of diamonds has remained stable.
No dividends, no interest
Before buying diamonds, however, investors should keep a few hurdles in mind. For example, similar to precious metals, there are no fixed dividends or interest. The return on the investment is therefore determined solely by the performance. The valuation of a diamond is a practically impossible undertaking for laymen, since even small inclusions can cause high price reductions.
Differences in quality are hardly recognizable for laymen
Investors should pay attention to the certificates of recognized testing agencies, because they provide information about the quality of a diamond in a standardized form. Every diamond we offer has been graduated by the Diamond Testing Laboratory (DPL) in Idar-Oberstein or comparable institutes such as the Gemological Institute of America or the Hoge Raad voor Diamant (HRD) from Belgium.
Valuation of diamonds: A science in itself
Special care is required when selecting a suitable diamond: All too sensational rarities, which can only be sold through international auction houses, can plummet in value if no enthusiast can be found. The system of clarity grades is like a small science - flawless quality (IF, internally flawless) is the best clarity category for large diamonds. For color, high-fine white (D, exceptional white +) is the highest classification. However, the classification is not for casual buyers, but only to be done by a professional. Because every diamond is unique - and unlike gold and silver, a determination of the material value depends on many factors.
To make your investment decision easier, we carry only a comparatively small assortment of diamonds that meet the requirements of a capital investment: For example, we only offer flawless diamonds in the three highest color grades without fluorescence
Storage and security: Diamonds are not indestructible
Storage plays a special role when investing in diamonds - because although diamonds are popularly considered to be particularly break-resistant and have a high melting point, there is still a realistic risk of damage: Impacts with sufficiently hard material can damage diamonds. They also dissolve at too high a temperature - in a fire, for example. Even larger diamonds begin to burn at a temperature of 800 degrees Celsius. Diamonds in powder form already ignite well below this temperature mark.
With patience to profit: Diamonds are not for speculators
Last but not least, investing in diamonds requires a solid investment strategy - while diamonds fascinate most people and are the epitome of wealth and appreciation, diamonds are not for short-term speculation. A look at the performance of diamonds shows that they have not attracted attention by sensational and explosive increases in value, but by solid and constant gains. In addition, the value-added tax prevents quick gains with diamonds: Just as with the white metals silver, palladium, diamonds purchased for investment also incur VAT at the rate of 19 percent - the investment must therefore mathematically first experience an increase in value of 19 percent in order to slide into the profit zone. However, such increases in value are unrealistic within a year, which is why diamonds are not suitable for short-term investors. On the other hand, those who think in the long term have a better chance of attractive increases in value - if the diamonds are owned for at least one year and only sold thereafter, price gains are tax-free.
Conclusion: The most important advantages and disadvantages at a glance
+ Worldwide demand at a high level, especially from emerging markets |
- Risk of counterfeiting |
+ Constant performance over the past decades |
- Taxes on short-term investments |
+ Market has not yet been overrun by private investors |
- Valuation of diamonds is complicated |
+ Limited raw material deposits are already causing supply shortages |
- High security in storage necessary to protect diamonds from damage |
+ Jewelry industry only slightly affected by financial crisis |
- No regular interest or dividends |