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What you should know about Coloured Diamonds

Historically, during times of economic upheaval, investors have fled global stock markets to the relative safety of gold. The extended period of economic uncertainty that has dogged stock markets around the world since the financial crisis of 2008 led to an over inflation of gold prices which then saw a sudden slump last year as early investors realised huge profits leaving the gold price in tatters. Patrick Connolly of the independent financial advisers AWD Chase de Vere forewarned investors in 2010 by commenting “We are urging caution because any asset class hitting record highs and still attracting increasing amounts of money is one of the major signs of a bandwagon in progress.” Since gold prices crashed in September 2011 the price of gold has remained volatile causing a number of investors to seek out a new ‘safe haven’ in which to preserve their wealth.

One likely looking usurper is diamonds. As reported recently in the Financial Times, A new wave of diamond hedge funds are now looking to overtake precious metals as the preferred ‘safe haven’ investment during an economic downturn. Peter Laib, chairman of Swiss group, Diamond Asset Advisors, commented: “After the subprime disaster and with economic uncertainty, investors are looking for low-volatility investments. Diamonds are less volatile, as they’re resistant to speculation by the financial community, so there are no derivatives or tradeable products and no short selling is possible”. The FT further speculated that, according to research this year by Barclays Wealth, the world’s millionaires are devoting an average of 9.6 per cent of their fortunes to non-financial assets such as collectables.

Andrew Coxon, president of the De Beers Institute of Diamonds says: “We do, of course, see clients investing these days in rare, beautiful diamonds, but purchasers know that they are also a sound investment. Mr Laib says that the funds could further fuel retail sales of fine jewellery. “You lose a large piece of value by buying at retail, of course [as opposed to investing in diamonds as a commodity at wholesale prices], but the fact that diamonds are seen as assets will make pieces more attractive,” he says. “It creates a feelgood factor about buying pieces.”

One of the most attractive investment opportunities for investors who are looking to protect their wealth is investing in natural fancy coloured diamonds. Fancy coloured diamonds are the most valuable gemstones on the planet on a cost per carat basis. Bruno Scarselli, who represents the third generation of U.S.-based coloured diamond specialist Scarselli Diamonds commented that “Natural coloured diamonds make up only 1% of global production, which gives them ‘unquestionable value’”. Through several decades and varying economic conditions, fancy coloured diamonds have never decreased in value. In fact, in the past thirty years, prices of these diamonds have steadily increased. This price stability is what once attracted investors to gold and is now making diamonds an attractive investment for the future.

Not only are diamonds a great store of wealth but also offer great returns and a provable, steady and consistent growth. Polished diamond prices have grown 100% since 2004, prices of ½-carat diamonds have risen 49% since 2001, one-carat diamonds have risen by 88.9% in the same period and three-carat diamonds have gone up a staggering 238% over the same time-frame. While the size of a diamond is undeniably important in determining price, colour is even more important. Red, blue, green and orange diamonds are extremely rare and therefore more expensive. Loose pink diamonds are rarer than loose yellow diamonds, so one .5 carat intense pink is more expensive than a 1 carat vivid yellow diamond. Exceptionally fine diamonds have no fixed price. As with fine art, set rules do not apply. Their true value can only be determined when they are sold at auction.

A declining supply of investment grade diamonds is one of the reasons behind the steady increases in diamond prices over the past few decades. There have been no significant discoveries of new mines containing fancy coloured diamonds in the past couple of years and those already in operation are producing fewer every year. The discovery of fancy coloured diamonds is random and hard to predict. Because of this, fancy coloured diamond production is expected to remain at current levels or decrease slightly in the near term. There has also been an increase in the number of high net-worth individuals (especially in Asia) looking to buy fancy coloured diamonds as both an investment and as a status symbol. Bruno Scarselli of Scarselli Diamonds commented "There are not enough diamonds to satisfy one-tenth of the new billionaires that are created every month in China". These factors coupled with an increase in demand for diamonds as a tangible asset investment have led to a fundamental change to the investment opportunities offered by diamonds.

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