Diamond Investment Program
Forget about stocks, bonds and savings accounts, one of the smartest ways to save for your child’s future is by investing in diamonds, a stone proven to be an inflation-fighting commodity, according to Fusion Alternative, a firm that specializes in diamond investments. Many financial analysts have even referred to diamonds as the next gold or platinum in terms of the increasing value and demand in the marketplace.
Diamonds are valuable in other ways outside of the obvious economic benefits, too. There is nothing more personal and special than passing a diamond from generation to generation. Women love to own sentimental pieces that have come from their mothers, grandmothers or great-grandmothers and have a long family history attached to them. Although diamonds are a wise financial investment, you simply can’t put a price on the bond that it creates between family members.
Ready to invest in a dazzling diamond? Follow these tips:
Confirm the quality
The price of the diamond, both upfront and at resale, is dependent on the quality of the diamond. Never buy a diamond for investment purposes unless it is certified, and it is preferable to get a diamond certified by the Gemological Institute of America. The GIA’s nonprofit status as a research laboratory and strict grading standards ensures the quality of the diamond that you are purchasing. Always ask to see the GIA certification for the diamond.
There are standard pricing levels based on Rapaport trading levels that are established around the world.
Buy from a Manufacturer
Maximize your profit on a diamond investment by going through a manufacturer. For investment purposes, they offer more flexibility on prices because their overhead costs are so low and they are directly at source, eliminating several brokers and dealers and their attached fees. The lower the cost of your diamond, the higher the profit when it comes time to resell it. Also, these manufacturer’s have a much wider selection than standalone jewelry stores, so you don’t have to settle when picking a diamond for investment.
Introducing the Rapaport Investment Diamond Certificate
The Rapaport Investment Diamond Certificate (RDC) is the industry’s most stringent standard for diamond quality. Obtained only by the highest quality diamonds, the Rapaport Investment Diamond Certificate separates premium quality from other high quality diamonds. By certifying top quality diamonds, the Investment Diamond Certificate provides absolute confidence and assurance of quality and added value as well as a standard trading vehicle.
All investment diamonds are double tested as they include an additional independent GIA® diamond grading report. The Investment Diamond Certificate will only be issued for the best quality diamonds that meet investment quality standards. Diamonds that lack overall brilliance, have features that limit trade liquidity or have borderline grades may not be issued an Investment Diamond Certificate.
The Rapaport Investment Diamond Certificate is designed to identify the best diamonds in the market while providing the trade, investors and consumers with the highest level of confidence in quality.
Obtaining an Investment Diamond Certificate guarantees the diamond’s quality and provides confidence for both buyer and seller, thus paving the way for online diamond transactions. Removing the physical barriers of diamond trading increases ease of sale and enables faster, safer and easier transactions, thus enlarging the overall market.
In addition, Rapaport certified diamonds maintain their market value, making them ideal for investors looking for portfolio diversification.
Why Diamonds Could Be a Better Investment Than Gold
Industry players believe diamonds could be a good replacement to gold as an investment option with the likelihood of steady price appreciation, as has been witnessed in recent years.
“The price of diamonds has been on an upward trend. I think it will give steady returns of 7-8 per cent annually in the medium term,” says Vijay Jain, CEO and Director – ORRA Fine Jewellery.
Jain says that unlike gold, prices of diamonds are not prone to volatility.
Jignesh Mehta, MD Divine Solitaires agrees. “Diamonds have emerged as a very good alternative to gold and have given annual returns of around 12 per cent over the past few years,” Mehta said. “The overall demand for diamond jewellery is up. For the year, sales of diamonds have been up by around 10 per cent,” Jain said.
Jignesh Mehta said that diamond jewellery is also adequately liquid. “Liquidity is not an issue with diamonds. You can get 90 per cent of the prevailing price any time. Since prices are moving up one can easily recoup the original investment,” Mehta said.
Increasing Demand and Declining Supply
A significant attraction of diamonds as a commodity play is that it doesn’t rely on China for consumption. In fact, the U.S. accounts for almost 40 percent of global diamond consumption, according to the report. Diamond demand is also strong in India.
Panmure Gordon’s paper reinforces the positive outlook expressed by consultants Bain & Company in their 2016 Global Diamond Industry report, released in December.
According to the report, diamond prices are expected to benefit in the next few years as recovering demand outstrips supply.
“The world rough-diamond demand in the next 15 years is forecast to grow at an average annual rate of about 3 percent to 4 percent, and the supply is projected to decline by 1 percent to 2 percent, causing the gap between supply and demand to widen starting in 2019,” the report says
Why Diamonds Are a Good 5-Year Play
Reports on mine supply say diamond production may peak in the next two years and begin to decline. The graph on the following page from McKinsey & Company shows expected future production.
Lack of new discoveries, diamond engagement rings becoming more common in developing countries and strong household incomes among the American affluent all strengthen the case for diamond investments.
The industry expects production to start declining between 2018 and 2020. Mining companies are scrambling to find more diamond deposits. Since 2000, they have spent $7 billion looking for diamonds, but the payoff has been meager. Rio Tinto made the only sizeable discovery in that time frame, finding nearly 35 million carats at the Bunder Project in central India. The Bunder Mine may produce an average of 2 million carats per year starting in 2017, or about 1.5% of annual global production — far less than the amount they expect to come off the market between now and 2026.
Exploration Declines Around the World
The annual exploration budget of the diamond industry has essentially been cut in half since ’07 and ’08. According to data compiled by SNL Metals & Mining Research, the global diamond exploration budget fell from $985 million in 2007 to $489 million in 2013. The percentage of global exploration dollars allocated to diamonds also fell from 9% of total exploration budgets in 2007 to only 3.4% in 2013.
From 1950, new diamond discoveries have taken 14 years on average to reach production. Technical difficulties, financing problems, and local politics all contribute to development delays of diamond discoveries.
Maintaining existing production will be a major challenge for the industry as some of the largest diamond mines are entering their sunset years. Australia’s Argyle Mine, for example, has been producing since 1981. It produced approximately 12.6 million carats in 2014, or 9% of global supply (second in production to DeBeer’s Orapa Mine in Botswana). Argyle is expected to shut down in 2020.
The lack of new discoveries in these areas has led some miners to expand to more costly underground operations.
Over 80% of annual production comes from just 20 mines. Any disruptions at these mines can have large consequences to industry players down the value chain. In anticipation of future supply complications, major jewelry retailers have begun integrating backwards by investing in mines to help secure their supply.
Increasing Diamond Demand
Diamonds are penetrating Chinese and Indian jewelry markets. Goldman Sachs reports that if current growth continues unabated, demand for diamonds should rise at a compound annual rate of 11% through 2022, mostly thanks to China and India.
In the United States, average incomes for the top one percent of Americans have grown much faster in the last couple of years than national average wages. According to Equity Communications, in 2013, female consumers with household income of over US$150,000 accounted for the acquisition of 14% of diamond jewelry pieces and 33% of sales by value. Recent strength in stocks and real-estate, which rich households tend to own in large amounts, has emboldened this demographic. They also tend to be the most loyal repeat buyers.
With a declining supply base around the world combined with increasing demand and a standardized investment vehicle, diamonds have become an important asset class to hedge your portfolio against inflation and currency devaluation as well as an important wealth preservation vehicle and stable and consistent growth vehicle. It has never been more important to own investment diamonds in your portfolio.
