It's Clear Cut: Diamonds Can Be An Investor's Best Friend
Posted in News on June 02, 2012 by Elite Diams
Herald Scotland Article
As Diamond Jubilee weekend distracts investors from a tumbling stock market, could they consider diamonds as a possible safe haven? When times are uncertain, investing in portable wealth such as gold or diamonds can prove attractive, says Andrew Cheney, specialist adviser at Hiscox, the insurers.
He says: "If people have money in a bank or building society earning not much of a return and they are concerned about the financial system anyway, they are thinking 'why not buy some jewellery which I can enjoy wearing and which is likely to go up in value?'
Investing in precious metals, particularly gold, has become increasingly popular since the global financial crisis. Gold can be purchased in a variety of ways. Small gold bars or gold coins are available, or you can buy shares in gold mining companies or gold ETFs (exchange traded funds).
Investing in diamonds is not so easy, unless you are prepared to buy jewellery. Increases in diamond jewellery prices are difficult to predict, but Lynette Gould, spokeswoman for the De Beers Group in London, says: "We anticipate considerable growth in demand for diamond jewellery, coupled with a gradual natural decrease in supply."
The US is currently the largest diamond jewellery market but Ms Gould points out that in the past year, major retailers have seen double-digit growth across operations in China and India. She says: "A new diamond tradition is taking hold in these markets. We expect China, India and the Gulf (collectively) to surpass the US"
For those considering buying diamond jewellery as an investment, quality is key. This depends on the 4C's – cut, colour, clarity and carat. Well-cut diamonds will refract the light better than poorly-cut diamonds. In terms of colour, although diamonds may seem colourless they often include shades of yellow or brown.
Rarer diamonds come in pink, red and blue. Recently there has been an increased interest in coloured diamonds, including black and chocolate-coloured diamonds, according to jewellers Ernest Jones.
Clarity refers to the purity of the inside of the stone, which also affects the way it reflects the light. Carat is the diamond's weight, although bear in mind that two stones of the same weight can have different values depending on their quality.
When you buy jewellery, there is also the value of the settings to take into account. If you are considering jewellery, buying at auction may be the best route.
Sarah Cotter, jewellery expert at McTear's Auctioneers in Glasgow, which runs specialist jewellery auctions, advises: "If you are buying diamond jewellery as an investment, never buy retail. You could buy, say, a one-carat diamond solitaire ring at auction for between £1200 and £1500. A similar ring from a jeweller's would cost £4000-£5000.
"I am not knocking jewellers, but they perform a different service. With jewellery bought at auction, you generally won't make a loss if you sell it on. If anything, it is likely to go up."
If you do acquire diamond jewellery, you will need to have it adequately insured. Be aware that even if your existing household insurance policy has a valuables limit of say, £5000, there is likely to be a lower single-item limit of, say, £1000. You may need to pay an extra premium for higher-value items.
Hiscox's Andrew Cheney points out that because of the uniqueness of diamonds it is important to get a proper valuation. He says: "If you are buying from a high street jeweller, the purchase valuation will normally be adequate for insurance purposes. If you buy from an auction, the description may not go into sufficient detail."
He points out that while many people are concerned about theft, it is much more likely that a stone in a ring or necklace will fall out and need to be replaced.
Under its home policy, Hiscox covers items of jewellery worth up to £15,000.
You could buy shares in diamond mining companies which should benefit from rising prices, but there are relatively few of these. De Beers controls around 40% of the market, but it is now part of Anglo American. Smaller miners quoted in the UK include Gem Diamonds and Petra Diamonds. Gem Diamonds owns two production mines, the Letseng mine in Lesotho and the Ellendale mine in Australia. Most of Petra Diamonds's mines are in South Africa.
Earlier this year it was reported that an ETF provider in the United States was planning to launch a diamond fund backed by physical gems.
However, critics have pointed out that such a fund will be difficult to put together.