Buying A Diamond As An Investment: Is It A Good Idea?
There’s only one goal: Finding out its resale value before you pay for it.
Is it a common practice to invest in precious diamonds and make profits?
First starters, making profits out of trading diamonds is not a common practice. You will find no ordinary investor who makes his living from this market.
I am not talking about jewelry retailers and diamond merchants.
I am talking about individual investors, like you and me.
Most of us like a piece of diamond jewelry for ourselves. And for that, we don’t mind paying up some extra cash to secure the bond through a tiny bit of treasure – a diamond ring for example.
Yet loose diamonds, if bought properly, have the potential to make big bucks upon finding the right bidder for your asset. And ‘properly’ here means acquiring a highly prized diamond that may ask for substantial amounts of money.
Being that so obvious, am I trying to tell you how to shell out $10 million to buy an extremely rare fancy-colored solitaire, and wait for the right buyer to pay you eleven?
Well, not many people have the luxury to spend a fortune that big, just to invest in a little gemstone and then anxiously wait for a buyer.
I am talking about an investment that we can afford to procure a valuable diamond, and then sell it for a pleasant margin.
Does diamond trading work like other commodities, similar to precious metals? Is there a system in place to trade diamonds?
Is there a Commodity Exchange for diamonds? Do the prices go up and down like gold and silver?
I’ve never heard of it. Not as a regular guy. I have never seen a single mention of diamond ticker on any business channel. They run equity and commodity news all day.
But it’s happening!
Diamond Indexes also exist, representing price trends for diamonds.
Although not a very popular choice among investors (which I already mentioned), Diamond futures contracts are being traded on Indian Commodity Exchange (ICEX), for one example. Here is how it looks on ICEX’s website:
A recent addition is CEDEX exchange, a Blockchain-based platform that allows average investors to trade in diamonds, just like commodities. Our sources say that they have tabled diamonds worth at least $50 million on their trading platform, and they even take care of actual delivery of diamonds that are bought by the investors through them.
A promising fact I found about CEDEX is that they have prominently linked GIA certificate for each diamond they have listed on their platform. Check out these screen captures:
On platforms like these, all you have to do is to compare the prices of two identical diamonds which have nearly the same 4C characteristics – cut, color, clarity, and carat weight. Cross-referencing diamond prices online and in the outlets would provide you with definite knowledge you need to assess a diamond’s true worth.
If you are lucky, you’ll find the same diamond (recognized by its unique certificate number) listed on two platforms. That way, you would get an absolute idea of its true value.
Apart from this method, there are some diamond publications available in the market that are specific to calculate diamond prices only. One of them is the Rapaport Diamond Report.
Please note that the naturally colored fancy diamonds are very different from whitish diamonds and both are gauged differently for price.
Who sets the price of diamonds, and how do their prices fluctuate?
This one is tricky to answer.
Let’s say there are only a few diamond mining companies in the world.
And if you think;
- That mining companies dig the diamonds,
- And keep the production stock in their vaults,
- To release a few diamonds whenever necessary to retain the demand-supply balance,
Then, I won’t disagree with you.
Let’s understand this case –
De Beers is a diamond mining giant that sells rough diamond bundles worth millions, to selected buyers (Sightholders) only. These ‘invited’ buyers are under De Beers’s contract to follow strict rules and not resell the diamonds in the markets where prices of diamonds might drop.
De Beers even audits its Sightholders’ inventories and their markets. Being the world’s leading diamond exploration company, it has put a successful system in place to directly influence diamond prices across the world.
On the other hand, there is no longer a monopoly in this sector. Other diamond mining corporations have already started to make this area ‘competitive’.
However, for natural diamonds, if I were among the handful of diamond digging companies myself, I would also have made a similar strategy to keep my products in demand.
Except for the reason above, price fluctuations in the diamond market stay minor, which are influenced by everyday factors like jewelry designing fee, location of an outlet, and various other reasons.
But not for the special diamonds! See if you can acquire a fancy diamond like these and possibly organize an auction to resell it.
Moreover, let’s not take into account the lab-grown diamonds. They are in fact 100% diamonds by scientific means, but they aren’t popular like the natural ones.
Type of diamonds you can buy for investment purposes: natural, synthetic, or colored.
It depends on your budget. Never buy a conflict diamond.
All diamonds are unique. There is no universal method to figure out a diamond’s price just by its carat weight. The price of a diamond is best estimated by its 4Cs, and/or its historic importance.
If a diamond weighs more than 0.5 carats, it is likely that it’s been in the hands of industry professionals before, to take care of refining & commercial tasks. An investor may go for a diamond that weighs 0.5 carats or more in case of colorless diamonds.
A naturally colored diamond, however, can fetch higher figures for even less than 0.5 carats and that price could be decent enough to make an investment, at least for an average household like myself.
Whitish-colorless synthetic diamonds cost way too less than their natural counterparts. Nevertheless, earth-mined diamonds enjoy such a high demand that lab-made diamonds are nowhere near to match.
Raw or polished, you may want to focus on the natural ones for investment because you would be able to encash them without much trouble, whenever you receive a suitable offer.
Now my personal favorite – fancy colored natural diamonds.
If you can pull something off like buying any ‘famed’ diamond for a fair price (that’s still going to be an enormous amount of money), then the chances of making a tremendous gain are increased, given the diamond’s reputation. I am talking about hundreds of thousands of dollars at least, if not millions.
Stardom or not, naturally colored diamonds are often the most expensive ones, as they are considered ‘exquisite’. A colored diamond with a carat weight greater than five is a big deal. That’d be a unique find.
So, should you buy a colored diamond over a whitish colorless one, for investment goals?
No. You can buy either one with confidence.
Having said that, you don’t want to buy what everyone already has. For maximum profitability, try to buy a special one which is desired by everyone. This is why the colored ones are more expensive – rarity & demand.
Fact check: De Beers Centenary Diamond is a colorless diamond that is valued at approximately $100 million.
From where you can buy, and to whom you can sell. Available options in the market for diamond investors.
There are three ways to do it.
Firstly, the diamond exchanges and hubs.
I hope you already have an idea about regulated diamond contracts that can be bought and sold on various ‘exchanges’ online, just like equity and commodity.
Serious investors often visit international markets and top diamond hubs, such as:
- Bharat Diamond Bourse
- Israeli Diamond Exchange
- Diamond Dealers Club, New York
- Antwerp Diamond District, controlled by Antwerp World Diamond Centre, Belgium
Second option is retail outlets.
Many jewelers offer buyback policies of their own, varying from 85-95% of what you pay, if the market price stays the same.
Thirdly, the auctions!
The Oppenheimer Blue diamond, named after its previous owner Philip Oppenheimer, was sold at an auction to a bidder whose identity is kept secret by the auction house – Christie’s.
Is there any paperwork or procedure that you have to follow to trade diamonds?
You only need to acquire two documents.
- 1. Diamond certificate for authentication purpose.
- 2. Invoice, showing transaction and ownership details thoroughly.
Needless to say, you must purchase from a reputable dealer.
Common mistakes to avoid while you invest in diamonds:
- Do not overpay. Learn to read diamond pricing charts and compare prices. Do not invest in diamonds before you entirely know how they are priced and how you can resell them with margins.
- The diamond report in front of you must be exclusive to the diamond in question. Every diamond has its own certificate. If someone shows you a common diamond price chart and tries to sell you a diamond without a certificate, do not buy.
- Talking about certificates, make sure that it is issued by a reputable diamond grading institution only.
- If possible, involve an expert to accompany you. Jewelry store lightings are strategically placed to make the jewelry appear shiny & bright.
- Avoid buying diamonds of similar types and the most common ones. Make a portfolio and diversity your purchases.
- Have patience. Selling a diamond for profit could take time. Do not expect short term profits in this trade.
Pros of investing in diamonds
- Profitability is good in the long-term.
- Scope of substantial gains, when rare diamonds are sold in auctions.
- No storage or transportation difficulties, except securing & insuring the diamonds from thefts.
- Diamonds are often considered as inflation-proof.
- It is very difficult to assess the right price for a diamond, keeping in mind the resale value.
- Finding the right buyer is a tough task. If you approach any retailer to sell your asset, then be ready for tricky negotiations. Selling a high-profile diamond through an auction house helps, but at a price.
- No steep rise or fall in prices. It is a long term investment.