Diamond investment: the investment diamond: myth or reality?
- Investing in diamonds: myth or reality?
- Conjunctural aspects
- Technical aspects
- How to invest in diamonds?
- Which diamonds should you invest in?
- How much should you invest in diamonds?
- Comparison of investment diamond reselling
- Reselling an investment diamond
- What added value can you expect when reselling an investment diamond?
- Capital gains tax when reselling a diamond
- Our conclusion concerning investment diamonds
In reaction to the publication of numerous articles on investment diamonds that present conflicting information, we have decided to write our own article on the topic.
Often, these articles are written by people who are either self-serving or ill-informed about the diamond industry.
We will strive to shed light on investment diamonds as objectively as possible so that you develop an informed opinion on the subject.
Investing in diamonds: myth or reality?
When someone mentions investment diamonds, he is often met with two different reactions:
- It's a scam and a bad investment: run!
- It is a good investment, a safe investment, and a supplement to your savings.
How is it actually?
Investing in diamonds is fairly complex and all the technical, financial, conjunctural, and fiscal aspects have to be considered. This is why it would be too simplistic to say that it is a good investment or a bad one.
In the 1980s, investment diamonds were on the roll and private individuals put some of their savings into one or several diamonds. These gemstones were sold at full price by diamantaires who were more or less scrupulous. Today these diamonds are back on the market, with their owners trying to resell at the best price possible. However, they are often disillusioned; because they bought their investment diamonds at too high a price then, they now resign themselves to selling at a loss.
Just because there were selling abuses in the 1980s does not mean that diamond is a bad investment.
Indeed, we could ask ourselves: is investing in shares or open-ended funds a good idea? The answer to this question will depend on several factors:
- Which stocks/open-ended funds should you invest in?
- Why invest in these stock/open-ended funds?
- Is this the good time to invest?
- How much should you invest?
- How long will it take before I make a profit?
- What is the risk of loss?
In the past, there have been speculative bubbles on the stock market and on the real estate market. Some small savers lost part of their savings when these bubbles came to burst, and yet these kinds of investments still exist and are offered by banks, investment clubs, etc.
There is always a risk of loss when making a financial investment or when investing in real estate. Investing in diamonds is no different. If you are not ready to take the risk, then it is better not to invest.
Conjunctural aspects
The economic situation directly influences diamond prices. For example, the diamond market experienced a major crisis in November 2015.
In 2015, an economic slowdown in China - and therefore a drop in the demand for cut diamonds in China - was enough to cause a contraction of the diamond market.
In order to revive the markets, the major diamond-mining companies worldwide (De Beers and Alrosa) lowered their prices by 8-10%, but to no avail. At times, sightholders even refused 50% of the rough diamonds sold by De Beers. If you are not sure you will sell your diamonds once cut, what is the point of buying rough diamonds in the first place? When demand (in cut diamonds) is lower than supply, a disequilibrium occurs and prices go down.
If some experts, be they economists or sightholders, had been told before the 2015 crisis what the diamond market situation would be in 2021, they would not have believed it. Because all these supposed experts then predicted that the market of developing countries (BRICSAM) would actually absorb the quantities of diamonds added to the market every year. However, the reality is that the major mining companies have decreased their diamond production, their diamond sales, as well as their prices so as to adapt to the current situation.
In 2020, the COVID-19 pandemic had a huge impact on the diamond industry as a whole:
- Diamond mines had to stop their production.
- Gem cutting in India stopped.
- Major diamond companies such as De beers and Alrosa were no longer able to sell their production of rough diamonds because there were no buyers.
- The major centers of diamond trade such as NYC, Antwerp, and Tel Aviv had to fire thousands of employees.
- In March 2020, at the height of the pandemic, Martin Rapaport suddenly lowered all the diamond price lists by 7%, thereby provoking an outcry in the profession as well as an unprecedented protest by wholesalers who saw the value of their stock drop by 7% overnight.
Who could have foreseen such a cataclysm for 2020, as well as all the subsequent economic repercussions on the diamond industry? No one.
Technical aspects
An investment diamond is a diamond sold with a grading report, the latter being issued by a laboratory recognised by our profession (GIA or HRD).
It is an unmounted and unset gemstone, which will often be stored in a safe. It will therefore not be worn on a ring or on any piece of jewelry for that matter.
Diamond prices (see Rapaport Price List) and international transactions within the diamond industry are expressed in USD. Because a European customer will buy his diamond or his diamond ring in euros, there will be a currency exchange made at a given time. The exchange rate varies according to the foreign exchange market.
There are 1,560 different categories for round brilliant cut diamonds and 1,400 different categories for the other diamond shapes (princess cut, pear cut, heart cut, cushion cut, etc.)
In order to determine the value of a polished diamond, one has to know what we call the ‘4Cs' (the four criteria for assessing the quality of a diamond):
- its shape (cut): round brilliant cut, princess cut, pear cut, oval cut, etc.
- its carat weight
- its color
- its clarity
- other criteria, such as the cut quality, the polishing, the symmetry, the fluorescence, etc. are also used to assess the value of a diamond precisely
Each diamond category therefore has its own value, its own quotation:
- A 1 carat round brilliant cut diamond with a D color grade and an IF clarity does not have the same value as a 1 carat round brilliant cut diamond with an E color grade and a VS1 clarity.
- Similarly, a 1 carat round brilliant cut diamond with a D color grade and an IF clarity does not have the same value as a 1 carat princess cut diamond with a D color grande and an IF clarity.
If it is recommended to invest in certain diamond categories, you should not invest in just any category. It is not because what you invest in is a diamond that its value increased in the past, or ever will!
The selling price of a diamond can be broken down as follows:
- the diamantaire buys a diamond in USD at more or less xx% of the Rapaport price.
- He then adds his commercial margin.
- He may also convert the price in his local currency according to the exchange rate of the moment.
- He may add the VAT.
How to invest in diamonds?
It is best that you contact a company that is established in your home country. Make sure it does exist and that it was not created too recently.
Contact them by phone and ask precise questions regarding your future purchase as well as on the type of investment diamonds that they recommend. If you see that what they offer is too different from the pieces of advice you can find on this page, then you should contact another company.
Some companies offer to sell you an investment diamond without the VAT and to keep it in one of their safes located in a free zone (Belgium, Switzerland, etc.). You are therefore not in possession of this diamond since it is stored by the company. What would happen if the company went bankrupt?
In 2017-18, many societies were created with the aim of swindling private individuals. These companies offered customers to store for them the diamonds they had bought in their safes, located in free zones. With their crafty commercial speech, they promised advantageous purchasing prices as their diamonds were sold duty-free (without VAT), supposedly stored in a free zone. Most of the time these companies closed a few months after their creation, after having debited their customers, who were left without any recourse to recover their money. It proved impossible for them to recover the diamond they had bought and to resell it. This is why you should avoid these kinds of "commercial" offers, which use a video that boasts about the rise in the value of diamonds. This video is presented by a renowned TV broadcaster and highlights how much money you would save by buying a diamond that is stored in a free zone.
Which diamonds should you invest in?
Here is the ideal profile of an investment diamond:
- Round brilliant cut diamond
- Minimum weight: 0.60 carat weight
- Color: D
- Clarity: FL (Flawless) or IF (Internally Flawless)
- Diamond certificate: GIA issued
- Cut quality, polishing, and symmetry: Excellent
- No fluorescence
- The diamond you buy will need to have the report number laser-engraved on the girdle.
Be careful: just because you are offered a diamond with all these characteristics does not mean that you should rush into buying it! Indeed, other criteria are to be taken into account before acquiring a diamond:
- Is the price I'm being offered a good one?
- Is the economic situation good?
- What are the current prices of the diamond I am considering buying like?
- Is the time horizon I have defined long enough for me to hope for a capital gain?
- What are the future possibilities for resale?
- How much money can I hope to get from reselling it?
- Who can I resell it to?
Always check on the GIA website that the diamond report number you are given is valid.
How much should you invest in diamonds?
Investment diamonds must be conceived as a supplement to your savings.
Investment diamonds should represent around 5 to 10% of your total assets.
Comparison of investment diamond reselling
Here is a comparison of purchasing prices and resale prices of an investment diamond:
| Purchase | Resale |
|---|---|
| 1. Calculate the diamond price in USD on the day of purchase | 1. Calculate the diamond price in USD on the day of repurchase |
| 2. Convert the price to your local currency (if not USD) on the day of purchase. | 2. Convert the price to your local currency (if not USD) on the day of repurchase. |
| 3. Commercial margin of the company: between 5 and 20% | 3. Commercial margin of the company: between 5 and 20% |
| 4. Add the VAT (if your country adds a VAT on this kind of good) | 4. |
First, you will notice that professionals do not add a VAT to calculate repurchase prices. There is therefore a difference/loss in the amount of VAT to be expected.
Second, if the diamond prices have increased or decreased between the day of purchase and the day of resale, the value of this diamond will not be identical.
Third, it is likely that the exchange rate of your local currency (if not USD) will not be the same on the day of purchase and resale.
There are four factors to take into account:
- The difference in price/quotation expressed in USD between the day of purchase and the day of resale
- the difference of the exchange rate to your local currency (if not USD) between the day of purchase and the day of resale
- The cost of the commercial margin (between 5 and 20%)
- The loss associated to VAT (if your country applies a VAT on this kind of good)
Only the TVA loss and the cost associated with the commercial margin are set, the two other variables may be advantageous, disadvantageous, or cancel each other out.
The commercial margin applies to both the purchasing price of the diamond and its resale price. A diamantaire will only repurchase your diamond if he can get it at a cheaper price than on the international market.
Americans have an advantage over other nationalities since they purchase and resale their diamonds in USD and usually have no VAT to pay. For many other countries, converting the price to their local currency and paying a VAT will be required.
Reselling an investment diamond
Buying an investment diamond is a good idea, but knowing where to resell it and how much is essential.
You can resell a diamond through:
- a diamantaire: he will repurchase it at the international market price. A drop in value as compared to a new diamond is to be expected.
- the company that sold it to you: if it still exists and if they are interested in repurchasing your diamond.
- a jeweler: he may either repurchase it directly or offer to sell it on consignment (it is one of the most interesting options since he will get a commission: the higher the price of the diamond he manages to sell is, the higher his commission will be.)
- Auctions: a drop in value as compared to the initial price as well as sale charges are to be expected.
- a private individual: through advertisement for example. The seller sets his price, so this is a good option to get the best price possible, although it may take time before finding a buyer. You also have to be careful about ill-intentioned buyers.
- diamonds online: we will be able to add for free to our diamond bourse the diamonds our customers brought from us. There are no fees, we take no commission on the sale and you will be able to set the price you want.
Thanks to our Price of polished diamonds subscription, you will be able to know the resale price of a diamond.
How much will a diamantaire repurchase an investment diamond?
- He will calculate the diamond price in USD at xx% of the Rapaport price.
- He will convert this price to his local currency (if not USD) based on the exchange rate of that day.
What added value can you expect when reselling an investment diamond?
In order to make a profit, we recommend that you keep the diamond for at least ten years. It is therefore a long-term investment that you make.
Our Diamond Pricing subscription will allow you to know the evolution of cut diamond prices (for diamonds weighing between 0.01 and 5.99 carat weight) from 2005 onwards. You will be able to know whether diamond prices have increased or decreased since 2005 and how the prices are likely to evolve.
Some diamond categories have seen their value increase by more than 100% since 2005. Conversely, other categories have seen their value decrease since 2005. Our subscription will allow you to see how the prices of the diamond you are interested in is likely to evolve and whether its value has increased or decreased since 2005.
Capital gains tax when reselling a diamond
The tax policy of your country must be studied carefully in order to know what taxes you may be liable to pay when reselling your diamond.
Our conclusion concerning investment diamonds
In our opinion, a diamond should be mounted on a jewel, so as to be worn.
The "diamond" is the queen of gemstones. It took billions of years for the Earth to make this gemstone and, as a consequence, we believe it would be a shame to keep it in a safe, behind closed doors.
Most of the time, diamond jewelry is given for special events (an engagement, a wedding, a birthday.) A special relationship between the diamond and its owner develops; the person who wears it must be able to admire it every day.
However, should our customers want to buy a diamond as an investment, we would be happy to provide them with reliable information and guide them in their choices by recommending the diamond categories that we believe to be the most appropriate for such purchases.