One of the great properties of diamonds is their shelf life. They have an unlimited shelf life. Diamonds literally are forever.
Diamonds don’t age. A well maintained lady may age well but diamonds don’t age at all!
If you buy a vintage Bugatti car as a long-term investment, just the upkeep and maintenance may be prohibitive. Even though the value of your investment may go up, you are constantly busy maintaining your car in driving condition. A diamond, set or unset, needs no maintenance - no spare parts, and no tax issues to report – as is the case with a stock portfolio.
Talking of stocks, if you look at your stock holding over a 15 year period, Intel traded for approximately USD70 dollar in 2000. In 2005 it traded at USD22 and today it also trades around the USD22 dollar level.
Microsoft in 2000 traded around the USD58 level, in 2005 it traded at USD25, today it is USD23.71. In 1990, Ford traded at USD15 dollar; in 2005 it also traded at USD15, today it is USD14. I don’t want to say that all stocks are rubbish but I don’t see many stocks around which can match the price development of a 5ct Fancy Yellow.
This is how a 5ct Fancy Yellow VS traded over the past 20 years:
1990 - approximately USD3,500/ct
2005 - approximately USD5,000/ct
2008 - before the dip, approximately USD9000; after the dip, USD6,500/ct
Today a 5ct Fancy Yellow radiant is approximately USD12,000/ct.
I don’t want to be a prophet as nobody knows the future; however I wouldn’t be “shorting” fancy color diamonds.
Markets are reacting on economical and emotional movements. The diamond industry has its own emotional circles that don’t move in lockstep with the world economy.
As the U.S. economy started to recover after the 2008 meltdown, stock markets and the finance industry made a powerful recovery. However, a year later, the recovery seems to be losing momentum and is coming to a complete hold. Stock markets and commodity markets have been falling for 6 consecutive weeks. U.S. unemployment data is poor as is consumer sentiment. The diamond industry is immune to this though as diamond prices are powering ahead uninterrupted.
Yellow diamonds in different intensities
It appears as though diamond prices have their own dynamic as they disregard all other market indicators. The price increase in the diamond industry is driven by two different engines.
In my opinion, the main driving force of the dramatic price increases – besides the growing world population, in particular in the two most populace countries in the world: China and India – is the existence of abundant spare cash coupled with disillusionment in other available investment vehicles. There are millions of customers with a constant inflow of fresh cash. Business people, doctors, and entrepreneurs are making money despite the stuttering world economy. Some of them have only one leading motive, to find a reliable long-term investment with capital appreciation; something more stable than the stock market. It is nearly impossible to find a solid investment. Gold is near all time record levels, corporate bonds are too risky. With almost every major economy running massive deficits, the taxman is trying to help balance the books by watching every step you take. You have to report if you gain or you lose. But a USD25 million diamond can be held between your fingers or placed in your shirt pocket….
Diamond prices are also driven by one another powerful engine: the prices of rough diamonds. Rough diamond prices are determined predominantly by De Beers – the Central Selling Organization based in London. Ten times a year, they provide to a number of selected site holders a fixed allocation of rough diamonds .The prices are dictated and controlled by De Beers, and are not open to negotiation.
The Diamond Trading Company raised the prices of rough diamonds this week by approximately 17 %. This price increase is so dramatic; however dealers have no means of recourse and must pay the set price. These price rises are then passed on to consumers ensuring that the prices of polished stones will continue to power ahead to new unchartered territories.