Why are diamonds suitable as an investment?

The fight against the coronavirus triggered a record slump in the global economy. With unprecedented new debt. The domestic and foreign policy dirigisme, with the resulting economic, energy, political and social upheavals and the protracted, long-term low interest rate policy worldwide, followed by currently rising inflation. Many goods and services will have become significantly more expensive in 2022.

We are in a global permanent crisis mode.

There have never been as many good reasons to invest in diamonds as an investment as there are today!

Small but fine, precious & pure

Formed hundreds of kilometers underground, heat-resistant up to 3550 degrees , several hundred million years old and the hardest known material in the universe. Diamonds are rare, virtually indestructible and their value has been undisputed for thousands of years. Their small size and light weight make them even more attractive as an investment object compared to classic precious metals such as gold or platinum. While a diamond worth 50,000 euros weighs less than half a gram and is difficult to transport, gold of the same value weighs around 1 kg and has a much larger volume. Without an exorbitantly fluctuating stock market risk.

Diamonds are easy to transport and can be stored inexpensively and in a space-saving manner.

An example: Nominal price development of polished diamonds vs. other price indices (01/2009 - 12/2022)

While stocks or gold are subject to strong price fluctuations as speculative goods, the price of diamonds develops much less erratically: after a real boom in 2011, the price of gold fell by thirty percent again, in some cases by 10 percent in just a few days. Diamond prices, on the other hand, are developing somewhat more slowly, but are more stable and insensitive to crises: Since 2007 - depending on the size and type of stone - prices for the sparkling asset have risen between 20 and 30 percent. Few other investment products have brought investors more returns in recent years with equally low volatility . In addition, experts assume that diamonds are far from reaching their full price potential

Diamonds are less suitable as a speculative asset, but are more suitable as a low-risk, crisis-proof long-term investment with returns of three to seven percent per year.

Strong in a diverse portfolio

It is also interesting that diamond prices develop relatively independently of trends in the gold or stock markets. According to Markowitz's Nobel Prize-winning portfolio theory, the key to a successful portfolio is diversification. If a portfolio contains little or no correlating assets such as stocks, gold and diamonds, exactly this diversification effect occurs and leads to security and higher profits.

Diamonds are particularly suitable as a supplementary investment in a diverse portfolio.

Supply and demand for rough diamonds (2013-2024)

The forecasts for the future price development of diamonds are very positive. The explanation is logical: the supply of stones is falling, the demand is increasing. On the one hand, this is due to the fact that the known reserves of the valuable gemstone are becoming scarce. According to management consultancy Bain & Company, global diamond production will only increase until 2018. From 2019, most of the known mines will be exhausted and production will decline by around 1.8% annually.

Demand, on the other hand, is expected to continue to rise - by 4.5 percent in 2014 alone, for example, according to the world's largest diamond miner DeBeers. The increasing demand is primarily driven by the Indian and Chinese jewelry markets. The two emerging economic nations of India and China together are home to over 35% of the world's population. As industrialization progresses, general prosperity increases and so does the demand for Western luxury goods. Engagement rings with a diamond are at the top of the wish list, especially for young Chinese women.

Demand for rough diamonds in million dollars: Different regions in comparison

Falling supply due to depleted diamond reserves and increasing demand driven by China and India mean that the price of jewelry diamonds is expected to rise steadily

Synthetic stones

“What will happen to the value of my investment diamond if diamonds can be artificially produced?” A legitimate question, but according to the results of the Bain & Company report, there is no reason to worry. Several methods have been known to produce so-called synthetic or artificial diamonds since the 1950s. The expensive processes have so far mostly been used for industrial needs, but it is now possible to artificially produce jewelry-quality stones. However, all in all, artificial stones only take up around 1% of the diamonds used for jewelry production and, as Bain also confirms, do not pose a threat:

The special symbolic value of diamonds is firmly linked to their naturalness and authenticity. Therefore, both retailers and the majority of consumers reject synthetic stones as a false version of the real diamond. Similar to the art trade, the fake Picasso, i.e. the copy, does not compete with the real Picasso in terms of effect or price. It is therefore not expected that the price development of real diamonds will be negatively affected by their artificial duplicates.

By the way: Sapphires have been artificially produced for the jewelry market for a long time. However, this had no negative implications for the natural sapphire market - on the contrary. The price of blue gemstones has been rising steadily for years.

Due to their high production costs and different quality, it can be assumed that synthetic diamonds will not negatively impact the natural diamond jewelry market.