Diamonds are forever, or how people are trying to invent a silver bullet against inflation
#diamonds #invesments
In 2022 most investment asset classes posted negative annual performance, with some exceptions like oil, driven mainly by the global geopolitical situation. At the beginning of this year, many professional investors revived the theme of gold investing as a safe haven against inflation.
Still, some of the bravest brought the diamond as an alternative. At first glance, it sounds reasonable: limited supply, one of the largest producers of diamonds right now has limited ability to sell them on the open market, so market supply should go down. In contrast, global demand for diamonds will grow in the next several years due to the demand from 1% of the wealthiest part of the worldwide population. Demand for luxury goods has a trend to cover fast after the global macro downturn, but the picture isn’t that bright. Let’s split the diamond business into three segments:
Diamond mining (DeBeers Group and Alrosa Company Limited mainly)
Polishing
End product sale (jewelry companies)
Diamonds are not a commodity in a general definition mode. Each diamond is unique, and its price varies on clarity, color, and size. This year, it could cost a lot, and next year the trend for this specific color will change, and the price could go lower. In addition to that, it is tough to buy, store, and sell raw diamonds. If you want, you can try, but it will be a challenge.
A friend of mine was trying to sell stones with all documents and clean history and received several quotes with more than a 15%price difference. Moving toward jewelry, it looks more sustainable to buy vs. raw stones, but in this case, buying Bulgari, Cartier, or even Tiffany &Co., you will pay significant goodwill vs. the actual cost of diamonds, precious metals, and labor. If the jewelry is not exclusive or extremely expensive, it is unlikely that the price appreciation of a ring will have a100% correlation with diamonds. Therefore, it should be treated as an investment in jewelry, not diamond, gold, or platinum. So if you want to hedge inflation with diamond investing, think twice, and probably the only option is to buy jewelry to bring some joy rather than to beat CPI.
In 2022 most investment asset classes posted negative annual performance, with some exceptions like oil, driven mainly by the global geopolitical situation. At the beginning of this year, many professional investors revived the theme of gold investing as a safe haven against inflation.
Still, some of the bravest brought the diamond as an alternative. At first glance, it sounds reasonable: limited supply, one of the largest producers of diamonds right now has limited ability to sell them on the open market, so market supply should go down. In contrast, global demand for diamonds will grow in the next several years due to the demand from 1% of the wealthiest part of the worldwide population. Demand for luxury goods has a trend to cover fast after the global macro downturn, but the picture isn’t that bright. Let’s split the diamond business into three segments:
Diamond mining (DeBeers Group and Alrosa Company Limited mainly)
Polishing
End product sale (jewelry companies)
Diamonds are not a commodity in a general definition mode. Each diamond is unique, and its price varies on clarity, color, and size. This year, it could cost a lot, and next year the trend for this specific color will change, and the price could go lower. In addition to that, it is tough to buy, store, and sell raw diamonds. If you want, you can try, but it will be a challenge.
A friend of mine was trying to sell stones with all documents and clean history and received several quotes with more than a 15%price difference. Moving toward jewelry, it looks more sustainable to buy vs. raw stones, but in this case, buying Bulgari, Cartier, or even Tiffany &Co., you will pay significant goodwill vs. the actual cost of diamonds, precious metals, and labor. If the jewelry is not exclusive or extremely expensive, it is unlikely that the price appreciation of a ring will have a100% correlation with diamonds. Therefore, it should be treated as an investment in jewelry, not diamond, gold, or platinum. So if you want to hedge inflation with diamond investing, think twice, and probably the only option is to buy jewelry to bring some joy rather than to beat CPI.
