Dec 14, 2014
Is Color Diamond Investing Too Good to be True?
“From 2006 to 2014, fancy colored diamonds (pink, yellow, and blue diamonds) experienced an average total appreciation of 154.7%, according to the Fancy Color Research Foundation (FCRF), a non-profit colored diamond index that was established last year. In the same time period, the colorless, white diamond increased by 62.4%, according to the Diamond Prices Index.”
[Source: “Colored Diamonds: Asia’s New Fancy Best Friend” Forbes.com Feb. 5 ’15: Michelle Yuan]
Claims of Natural Fancy Intense and Vivid diamonds increasing on average by as much as 30% per annum are not an unusual assertion these days. Though these returns seem high, it is imperative to note that these projections are based on extremely rare diamond hues such as greens, blues and pinks in very high clarity grades (Flawless, Internally Flawless) with significant carat weights.
Modest sized investment-grade Yellow and Pink diamonds also have the capacity to garner impressive returns; ranging from 8% – 18% per annum, again depending on saturation of color, the clarity and the carat weight. Investment-grade diamonds are considered to be the best of the best in terms of their cuts, their beauty their color and clarity which therefore equates to more value.
For investors who do not believe in such claims, consider the following statement from diamond industry expert and senior industry analyst of GIA (Gemological Institute of America) “Of the millions of diamonds mined each year, only .001% can qualify as fancy colours…and only a handful can achieve the top grades of intense and vivid.”
This comes down to a mere fraction of investment-grade collectible color diamonds available in the market each year. Since investment-grade diamonds mandate the highest color and clarity grades, sourcing Intense and Vivid Flawless, Internally Flawless and Very Slightly Included diamonds becomes even more challenging. It is the rarity combined with high quality that creates even more rarity. And it is this very rarity that dictates returns.
If rarity and quality creates the value, then it is the high demand and low supply for these rare stones that creates the market. In fact, it is this primary fundamental that is the most important argument for owning a Natural Fancy Color Diamond and what is driving the market. It is the diminishing supply coupled with high global investor demand that is in actual fact perpetuating strong returns year after year for investment-grade diamonds.
Consider the following:
• There are no new mines coming online and older established mines producing color diamonds are scheduled to close in the next few years
With the Argyle mine slated to close in 2020 there are potentially five pink diamond tenders left. According to reports from GIA (Gemological Institute of America) we know that Tender diamonds purchased in 2008 have gone up 200% as of 2011 statistics. Based on past performance, increased demand and dwindling supply it is a fair assessment that these diamonds will grow in value beyond these percentages for many years, particularly once the mine is closed.
• More and more investors are looking to hard assets as an alternative to traditional and more volatile investments that have underperformed
• Extreme rarity coupled with low supply and investor demand is driving the market
• Auction sales for large highly saturated color diamonds have been breaking records on a yearly basis since the first single color diamond lot went into auction in 1980.
Color diamond collectors and investors have acquired, worn and passed these diamonds down for centuries but it has only made its way into public consciousness in the last few years. This is because the mainstream investor has been taught to invest in traditional paper investments such as Bonds, GIC’s or stocks. Hard asset investing has been reserved for real estate and maybe some collectibles such as art, cars, or memorabilia. More mainstream investing began in the 1970’s as a hedge against inflation and proved successful for highly savvy investors looking for alternative assets.
Consider Mr. Hancock owner of “THE HANCOCK RED” diamond. A ranch farmer from Montana purchased the exquisite 0.95 Carats Purplish Red Round Brilliant diamond in 1956 for $13,500 USD. In 1987 the diamond went into auction at Christie’s and sold for $880,000 USD. This sale preceeded the auction estimate of $150,000 and clearly demonstrates how rarity coupled with investor demand dictactes value.
As more interest in color diamonds continues, more investor demand continues and prices continue to rise as a result of this purchasing power with continuing diminished supply. Afterall, we only have what mother nature gave us billions of years ago. Once we have mined all of the accessible color diamonds, the remaining above ground world supply, will belong to the precious few who have collected or invested over the years.
It is basic math and basically common sense investing. There are no hidden fees, no maintenance charges, no index to watch and no geopolitical information that relates to the investment. Basic knowledge about diamonds is helpful but if you go with a company that is reputable and have a high-quality investment-grade inventory to choose from at fair pricing you will have a beautiful asset that will appreciate well over the long term.
Jeremy Wiseman, Vice President of Guildhall Diamonds Inc. has this to say about the doubters…
“Perhaps when people think this investment is “too good to be true”, they think they are going to double their money in two years or that if they hold the diamond for five years they can retire. If you purchase a Vivid Red diamond of course you are going to make more money in three years but you will be paying a lot up front for that rarity. A modest investor can expect more modest gains but over the long haul the accumulation is where the value lies”.