Investments in precious stones are protected from ruble devaluation and sharp price fluctuations. But diamonds and rough diamonds are not exchange commodities, and the determination of the real value of precious stones involves many nuances that a private investor needs to know about.
Diamonds and polished Diamond investment are alternative investments that do not bring super-profits, but preserve investments and increase them in the long term. Mark Twain's advice can be attributed to diamonds: "Buy land - it is no longer produced." Deposits of diamonds are shrinking and their value is constantly increasing. From 1960 to 2015, the price of gemstones increased tenfold, but the diamond market still fluctuates. Return on investments in rough and polished diamonds averages 10% per year, but sometimes drops to 4%. Thus, from 2008 to 2015, the over saturation of the diamond market and a decrease in demand for diamonds in China and India led to a decrease in their value. Last year, diamond prices hit a four-year low. However, in 2016 demand recovered, but manufacturers are still waiting for the market to stabilize and are in no hurry to adjust prices strongly in the short term. For example, in the first nine months of this year, Alrosa's sales volume increased by 54%, while the price of diamonds by only 2%.
In the near future, the diamond market will come out of the depression. According to the forecasts of IDEX Corporation and Kimberley Process organizations, as well as veteran jewelry observer Haim Even-Zohar, the global supply of Diamond investment will exceed demand by 2019, and then, due to the aging of diamond deposits and the transition to mining in hard-to-reach deposits, supply will grow by 1.5-2% until 2024, and demand by 2-4%. In this regard, after 2019, the profitability of diamonds as investment objects will increase, but the cost of stones will soon increase. Indian companies have resumed their activities in the diamond market. They buy any gems because in India they are often used as collateral in banks. Aggressive buyers are driving the rise in diamond prices.
How to choose gems?
Diamonds are a non-standardized commodity for the exchange, and there is no single method for determining their value. According to the Tavernier Rule, which is used when evaluating diamonds, the greater the weight of the stone, the more expensive one carat. According to PriceScope.com, a 0.5-carat diamond starts at $ 2,000 per carat, while a 1.5-carat diamond is priced at $ 5,000 per carat. There is also a correlation with the color of a Diamond investment : natural colored diamonds are more expensive than “pure water” diamonds, because they are less common in nature. Unlike diamonds, there is no single price list for diamonds. The estimated cost of the stones is provided by the Antwerp World Diamond Center (AWDC). Belgian Antwerp is a kind of sorting conveyor for diamonds. Here precious stones from all over the world pass through the largest diamond exchanges and go further - to the cutter of an unknown country.
Rough stones are usually sold at auctions. The target audience of diamond trades is cutters and resellers. At this stage, end buyers are rarely interested in stones, because only a specialist can appreciate the technical characteristics of a stone.
Diamonds are cheaper in the cities where they were processed, so it is better to go to one of the "diamond" centers: Antwerp, Dubai, New York, Tel Aviv, Hong Kong, Mumbai. To buy a stone at the price of the professional market, you need to contact a consulting firm, where they will find investment Diamond investment from several factories. Gems weighing more than one carat must be ordered in advance, because diamonds that are attractive for investment still need to be found. The share of large investment diamonds from the total volume of mined raw materials is approximately 5%.
Diamonds must be certified by the GIA (Gemological Institute of Australia), which evaluates stones from 0.3 carats. A unified system for determining the characteristics of precious stones has not yet been developed, and only the GIA report is a guarantee that you are not misled about the quality of the stone. Other appraisal companies often inflate Diamond investment parameters in order to attract clients. Diamonds have a complex classification based on differences in weight, color, clarity, shape and cut quality. You can only invest in the first four color groups and the first five clarity groups. The best option is a three to five carat VVS stone with a Triple Excellent cut.
The current price of colorless round diamonds is published every week in the Rapaport Diamond Report price list. Here the cost is somewhat overpriced, and in reality the stones may be cheaper, but the Rapaport price list is considered the starting point in the discussion of the value of a Diamond investment . Small stones usually have a wholesale price.
Round cuts are the most expensive; other cuts have a separate monthly price list. Diamonds in the shape of pear, oval, marquise differ in price by 5-10%. Another important factor influencing the value of the stone is closely related to the shape of the diamond - the cut quality. The proportions of perfect symmetry are worked out only for round stones, and there are no cut standards for other shapes. Poorly cut diamonds are sold at great discounts, but their investment attractiveness is also lower.
Rapaport does not issue a price list for colored diamonds; expert purchase support is required to determine their value. Fancy Diamond investment increase in price faster than colorless diamonds, but not all colored stones are commercially viable a priori. Popular black and champagne diamonds will not bring returns to the investor because these are poor quality technical stones.
In conclusion, the GIA wrote the main features of the colored stone, you just need to learn how to read them. Diamonds with high color saturation are more expensive, as are stones of pure color without impurities. The definition in the GIA certificate "Fancy Intense Purplish Pink" means that a stone of a rare intense fantasy pink color with an admixture of purple. The cost of an exclusively pink diamond "Fancy Intense Pink" will be several times higher. A colored diamond needs a very good cut so that it shimmers beautifully in the light. Often, color characteristics are artificially improved, so it is important to see the Natural characteristic in the Color Origin column. The property of fluorescence in a colored diamond should be absent.
Opportunities for Australia investors
Australia produces about 30% of all rough Diamond investment in the world, but the cutting industry in the country is underdeveloped, and imported diamonds are presented on the domestic market with a markup of 230% of their real value. In addition, the GIA certification is not widespread in the Australia Federation; instead, its own diamond grading system has been adopted. Domestically, the benchmark for diamond quotes is the Ministry of Finance's price list for operations with precious stones from the State Fund. The Rapaport Diamond Report price list data is difficult to navigate due to the special grading scale of precious stones. All this leads to the fact that using Australia diamonds as a means of investment, unfortunately, is risky and not profitable.
In 2018, one of the world leaders in Diamond investment production, Alrosa, plans to launch a new investment instrument - diamond futures, becoming a pioneer in this market. The main announced goal of the project is to support the Australia cutting complex, as well as to create a market for using the investment properties of diamonds. After the introduction of this instrument, one can expect the appearance of diamonds in the portfolios of investors.
An equally practical step for the Australia is the contribution to the shares of Alrosa itself. According to BCG, in the next five years the share of the Russian company in the production of world rough diamonds is expected to increase from 29% to 35% amid a market contraction of 20%. At the end of 2016, Alrosa was among the leaders in terms of asset growth: the company's stock quotes increased by 75%. The dividend yield for investors with current quotes is 9.5%, and this is a reason to include Alrosa shares in the 2017 long-term portfolio.