Why diamond investing makes sense

Why investing in diamonds makes good investing sense. . . . . . .

Very few people have heard of the coloured diamond market, the reason for this is that only 1 in 100,000 diamonds produced are coloured Diamonds.

The process by which Diamonds are formed requires the presence of trace elements and a distortion to the diamonds structure in order for colour be created within the Diamond. If Nitrogen is present it can impart yellow or orange to a diamond’s shade whilst the presence of Boron will impart a deep blue and hydrogen a violet shade.

Some of the world’s most popular coloured diamonds are a purplish pink which are produced in the Argyle mine in Australia.

These are produced in such small quantities that a year’s coloured diamond output would only half fill an ashtray.

Currently this supply of coloured Diamonds is produced in an open cast mine and it has been announced by Argyle mines that they intend to convert the mine to an underground one. Experts assess that the effect of this is likely to reduce the supply by about 40 percent as well as reducing the size of each stone.

The focus has moved onto coloured stones as a store of wealth and economic conditions are such that 15 to 40 percent annual returns are likely again, Current returns in 8 months of 2011 have shown price rises of 25 percent.

Why Should You Consider Coloured Diamonds in Your Portfolio?

Some of the reasons for choosing coloured Diamonds as an Investment are as follows: • • • • • • • •

As a hedge against inflation.

There is a universal standard for the valuation of coloured Diamonds.

It is an easy market to invest into.

They are highly portable and offer complete privacy of ownership as there are no reporting requirements to any tax authorities. It is an ideal way to transfer wealth between jurisdictions.

Coloured Diamonds are a natural resource which has a very limited supply; this reduces the volatility of investing in this asset class.

There is very little correlation to other asset classes such as stocks, bonds and property. It is an ideal portfolio diversifier to reduce the risk in a portfolio. The market is independent of Government regulation and control.

On a price per carat basis coloured Diamonds are the most expensive gem stones on the planet, they retain their value and have similar characteristics to fine paintings as an asset class.

Performance of coloured diamonds.......

If you had invested in a 1 carat Fancy Blue Diamond in 1970 it would have cost approximately £5000. By 2005 this would have increased in value to over £180,000.

The market has shown that the price of a Coloured Diamond doubles in value every 3 to 5 years.

The current performance over the last 3 years has shown returns significantly higher than that, with little chance of prices slowing in the near future. Some experts in the market are suggesting that the prices of these Diamonds could double in value in the next 12 to 24 months. The reason for these phenomenal growth rates are as follows: • • • • • •

Scarcity due to mine related shortages.

BHP Billiton production fell by 24 percent Rio Tinto saw its production fall by 23 percent Australia’s famed Argyle mine reported a 30 percent decline in production.

De Beers production fell by 4.1 percent Increased demand from investors including China transferring its reserves from US dollars to Gold and Coloured Diamonds, • Widespread hoarding due to the fact that investors no longer trust governments or banks and are looking for portable ways of protecting their wealth.

The Investment Process......

The cheapest coloured Diamonds start at around £2,500 to £5,000. Generally Diamond brokers try to encourage new clients into their baby programmes which go up to £25,000. One of the factors to consider is how good the broker’s trading desk is and how many clients they have. The advantage of this is if you need to liquidate your Diamond holding a good broker can probably sell your Diamond on in about 5 to 7 working days.

This is very important for the preservation of your liquidity. As a general rule the brokers will tell you that you should be comfortable with a holding period of 3 years.

In this time they hope to show you a significant profit in which they will take their commission on the backend sale, which is 5 percent.

Once you are satisfied with your investment they hope to build up your holding in Diamonds over the long term, which appears to be a very reasonable business strategy for long term gain for all parties.

In summary.......

Coloured Diamonds are considered Investment grade and can be a great store of wealth. The market is growing considerably at the moment and in the near future there seems to be no reason for this to slow.

The economic fundamentals seem to support the likelihood of double digit growth over the next few years. Unfortunately due to the high price of the stones it is not a market that a small investor can readily enter, but if you have around ÂŁ5,000 to ÂŁ15,000 this may be a way of storing your wealth and the likely volatility of this asset class would appear to be less than for Gold. The liquidity of the asset should be considered though as it would take a week or two to exit your position if you need your funds.

For further information contact us on: T: 01273 704 960 E: info@no1gems.co.uk W: www.no1gems.co.uk