For investors looking for an alternative safe haven to gold, diamonds could be an interesting choice. Demand for these gemstones continues to grow and, like gold, diamonds have been considered a store of value for centuries. Overall, diamond consortium De Beers expects growth in the global demand for rough diamonds to reach a new record this year, based on robust demand from China, India and other Asian emerging markets. As populations in the Pacific Rim have moved up to middle class status and new wealth, the popularity of luxury goods has surged. This includes a new love affair for diamonds. De Beers expects China, India and the Middle East to account for 40% of global diamond demand by 2015. The firm also expects that strong performance in the key U.S. market will contribute to that growth.
Widely Used for Industrial Purposes
Similar to platinum and silver, diamonds also blur the line between industrial and precious mineral. The gem has the highest hardness and heat conductivity of any bulk material, and it is used in a variety of industrial processes. Diamonds can be found in an assortment of saws and construction equipment, as well as high-tech applications like lasers, surgical equipment and in computer chip production. More than 80% of diamonds are used for industrial purposes. As the world continues to build out its infrastructure and mine for materials, diamond-based drills and equipment will continue to be in demand.
As an investment, diamonds have not disappointed. In 2010, rough-cut diamonds provided an overall return of 20%. Analysts at the Royal Bank of Canada predict the upward trend of higher diamond prices will continue over the longer term. In 2011, prices for gemstones have risen about 50%.
- Buying and selling both physical stones and fund holdings in diamonds can generate considerable transaction costs. You will find the most success in avoiding recurring transactions costs by buying diamonds or diamond holdings and maintaining the position for the long-term.Regardless of whether you are investing in physical diamond stones or in a diamond mutual fund or exchange traded fund, you will probably find yourself checking the market price of diamonds quite frequently. While the daily price of diamonds tends to be rather volatile, the long-term performance of the diamond market has proven to be steady and positive.
- Learn about diamonds. You must know a lot about gemstones in order to be a successful diamond investor. Start by learning the four c’s: cut, colour, clarity and carat. Each of these factors influences the value of a diamond.
- Plan your diamond investments. Start by budgeting how much money you can invest.
- Determine if you want to buy loose diamonds or diamond jewelry. Loose diamonds are more liquid because if you need to sell one, you won’t need to find someone who likes the setting. Diamond jewelry, however, is an investment that you can wear without diminishing its value.
- Contact a trusted diamond dealer. Get information about the diamonds that are available. If you have a special request, a Copenhagen Diamond Exchange can find the quality stone that you want.
- Purchase the diamonds of your choice. Hold them for years until they appreciate in value.
- Buy shares in diamond mining companies for another approach to investing in diamonds. Some diamond miners are listed on the London Stock Exchange’s Alternative Investment Market