Investing in Diamonds

PostBy Avi Paz Group At 05.09.2010

Diamond mines have always been a source of intense speculation, but diamonds themselves, always prized, present some interesting issues for the would-be investor.

One challenge is that diamonds remain easier to buy than to sell, which means that diamonds can't be "flipped" like real estate or other commodities. A purchaser seeking to profit on the sale of a diamond – particularly a rare one – as opposed to merely breaking even could wait years for the stone to appreciate. According to some experts, rare blue diamonds won't double in price for at least five years, whereas a yellow diamond could take eight to 10 years to double in value.

Rio Tinto, the owner of Australia's Argyle Mine – the world's primary producer of rare pink and red diamonds – is aware of the growing investment interest in colored diamonds and in 2010 released dor the first time a publication devoted to the subject: Rare and Collectible. The debut of the new publication coincided with the 2010 Argyle Pink Diamonds Tender.

Another question diamond investors face is the pricing system for rough and polished diamonds. The price of precious metals remains consistent by total weight no matter how the commodity is divided up, i.e. two 10 gram pieces of gold have the same value as one 20 gram piece. Not so with diamonds, whose per-carat price works on a sliding scale. A one-carat diamond has a significantly lower per-carat price than a five-carat diamond of comparable quality.

In addition, diamond pricing has been one of the less transparent aspects of an industry known for playing its cards close to the chest. The Ajediam Antwerp Diamonds Monthly and The Gem Guide serve as guides for diamond pricing, as does the Rapaport Diamond Report – a weekly trade publication detailing polished diamond prices, taking into account size, grade, and color.

Consumer expectations, which have no bearing on gold or silver ingots, are harder to categorize. An end customer determined to buy a five-carat ring might not settle for a stone weighing even a tenth of a carat less, which tends to inflate prices of diamonds at the upper end of a given size range. 
All these issues stand in the way of diamonds becoming a viable traded commodity, however valuable they may be as both a resource and an end product.