Diamonds as an Investment
Some people believe that diamonds are a good investment. In our experience, this is because jewellery salesmen have repeatedly said so, usually when they are trying to close a sale. This type of opinion should be treated with caution.
Most commodities and consumer goods increase in price roughly in line with inflation, and diamonds are no exception to this.
Most commodities need a degree of homogeneity for an efficient market to operate. Diamonds are almost infinitely variable, by weight, colour, clarity, shape, proportion, and a few other factors. Because they are not homogeneous, diamonds are unlikely to ever become an effective investment commodity.
- Terminal Market
Most commodities have terminal markets, and some form of broker exchange, clearing house, and central storage facilities. This does not exist for diamonds, and is unlikely to in the future.
- Efficient Market
By "efficient market", we mean that the items can be bought and sold at low buy-sell spreads in almost any quantity. This does not apply to diamonds.
- Sales Tax
For efficient investment, the goods must not be subject to sales taxes such as Value Added Tax (VAT). Diamonds are subject to VAT in the UK, EU, and sales tax in most developed countries, therefore reducing their effectiveness as an investment medium.
We have mentioned "commodity" several times. One definition of commodity is: "An article of trade or commerce, especially an agricultural or mining product that can be processed and resold." Although diamonds qualify as a commodity under this definition, their lack of homogenousness detracts from their inclusion as an investment commodity.
- High Markups
Most diamonds are sold through retail shops at very high profit margins. This is partly because retail competition currently favours prime site operators paying high rents. Another reason for high markups is the slow stockturn of jewellery, and the high interest cost, and security costs, of carrying large stocks.
- Individuals Demand Individual Jewellery
Consumers paying high prices for jewellery expect a degree of exclusivity or differentness when buying jewellery. This militates against real discount jewellery operators.
- De Beers Official Policy Discourages Investment
A phoney investment company calling itself De Beers Diamond Investments, Ltd was set up in 1977, selling investment diamonds by telephone. This company had no connection with the real De Beers. It was followed by about 200 more diamond investment sales companies. De Beers itself experimented with a foray into the market in 1978, but soon changed its mind, and later actively discouraged diamond investment parcels.
Diamond grading laboratories issuing certificates for diamonds go some way to making diamonds into a tradeable commodity, but it still fails to obviate the infinite variety factor. Buying certified diamonds via the internet is probably of more benefit to canny consumers.
Fashion influences demand, so can cause temporary price increases, which create investment opportunities.
- Top Quality
There will always be more upside potential for top quality in any markets, but this can also add to the downside risk too.
- Possible Investment
There will always be some investment potential for diamonds, but any diamond investor would need to bear the low liquidity of diamonds in mind. In fact, low liquidity could provide patient investors with opportunities. For example, if jewellers are offered large, high quality, high value, diamonds. they may be delighted to find an investor to offload to. It may then be mutually advantageous for the jeweller to try to market the stone for the investor.
One of the other main parts of our business, apart from gold coins, is jewellery, particularly diamond rings. We also sell loose certificated diamonds. You may wish to visit our other website www.24carat.co.uk.
High Quality Certified Diamond