Diamond Investing

Natural Diamond Color Drives Investments

Pink diamonds are without a doubt the rarest diamonds in the world. The only reliable source is the Argyle mine in East Kimberley, Australia. While this is a very active mine, their signature pink stones make up less than one tenth of one percent of their total output!

These fancy diamonds attract attention for any number of reasons. Their beauty tops the list, as tiny structural variations inside the stone produce colors ranging from light rose pink to deep violets and blues. Their rarity makes them a status symbol as well, since they routinely command high prices at auction. It is not uncommon to have pink diamonds at auction sell for more than $1 million.

People of significant means are taking more and more of an interest in pink diamonds as a lucrative investment asset. Why invest in pink diamonds? Let us suggest a few reasons.

The Appeal of Hard Assets

Liquid assets – stocks, equity, mutual funds, and their cousins, have been the go to form of investment for nearly a century. However, in an increasingly unstable economy, more and more people with wealth to invest are turning to material assets as a means to manage their wealth and gain returns.

Traditionally, this has meant investing in precious metals, but ‘enjoyable’ assets such as art and jewelry have been gaining traction in recent years. Barclay’s 2014 Wealth report found that 70 percent of their respondents have some form of investment in precious jewelry, a 26 percent increase from five years ago. Economic instability is driving this trend in ‘treasure’ investments, and there’s never been a better time to get on board. Jewelry has its appeal, but the most fluid and cost-effective treasure investment is loose stones, especially those of rare quality.

Diamond Color - Pinks are an Endangered Species

What makes pink, especially light pink diamonds such a potentially valuable investment? These stones are already rare…and they are about to get rarer. We mentioned earlier that Australia’s Argyle mine, owned by Rio Tinto, is the world’s major source of pink diamonds, but the Argyle mine is nearing the end of its lifespan. It took a break from production in 2013, to convert from open pit mining to an entirely underground operation that would expand the life of the mine by only about five years. Just last year, Rio Tinto indicated that the mine could cease operations in 2020, ending any reliable source of these highly valued stones.

Scarcity of Fancy Diamonds Creates Stability

One of the pitfalls of investing in precious stones has always been the difficulty of valuing them. “An ounce of gold is an ounce of gold,” explained senior investment partner Brent Fykes, of Genspring. “It’s not like that for diamonds.” Rather than simple volume, diamonds are graded on a sliding scale, based around the four C’s: clarity, color, cut, and carat (weight), which can make grading diamonds a very subjective process.

The greatest advantage of investing in pink diamonds is that their rarity ensures appreciation. With the promise of a finite supply in the next few years, interest in pink diamonds has never been higher, and that interest, both from jewelers and investors, is driving the price higher with each passing month. Just a few years ago, pink stones sold for an average of $13,000 per carat. In 2015, that price was an unbelievable $78,000 per carat. Pink diamonds show a reliable increase in price of 20 percent every year. They are not a ‘buy low’ investment opportunity. The huge yearly price increase suggests the eventual dividends could be well worth the high buy-in price. The limited supply also helps ensure that interest and demand for these stones will increase.

Future Speculation

Investing in precious stones carries risk as do all investments, but the rarity driving the interest in pink diamonds alleviates some of the uncertainty. The global investment market has been trending toward hard assets and treasure investments for the past five years, giving the qualified investor a chance to enter at an early stage of this fast-growing trend. Interest in pink diamonds has reached an all time high following the announcement of the Argyle mine’s impending closure and the end of the reliable diamond supply. If the qualified investor is looking for a way to diversify their investments with a very interesting option, pink diamonds could be the perfect addition to their portfolio.