The value of diamonds as an investment is of significant interest to the general public, as they are costly gemstones, often purchased in engagement rings, in part because of the success of the 20th century marketing campaign by De Beers. The difficulty of correctly assessing the value of individual quality gem diamonds complicates the situation. The end of De Beers monopoly and the discovery of new diamonds in the second half of the 20th century have reduced the resale value of diamonds. The Great Resession has aroused greater interest in demonstrating a safe haven or hedging property that is not correlated with investments in equity markets. Academic studies have shown that investments in physical diamonds exhibit greater safe haven characteristics than investment in diamond indexes.
Video Diamonds as an investment
Price formula
The law of Tavernier (or Indian law) is used to determine the price of a diamond. The formula is for the basic calculations and shows how the diamond price increases with the size. Larger gemstones are less rare and rise rapidly in price. Diamonds with 25 carats and more usually have their own names.
Where:
- W is the weight in the carat
- C is the base price of one carat stone
Example
Here's how diamond prices can go up with the formula applied to the base price of $ 1000 per carat:
- 1ct = $ 1,000
- 2ct = $ 4,000
- 5ct = $ 25,000
- 10ct = $ 100,000
Diamond prices are influenced by global trends. The biggest markets are the US (about half), China and India. Since 2008, larger diamonds have been appreciated better than smaller ones.
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Price fluctuations
The price of polished diamonds varies depending on the diamond carat, color, clarity and cut, sometimes referred to as 4 Cs. Unlike the precious metals, there is no universal world price per gram for diamonds. This industry refers to price guides such as Rapaport Diamond Report, Troy Diamond Report, PriceScope, Diamond Newsletter and The Gem Guide, published weekly, monthly or quarterly. The gem specialty organization has a variety of standards that can be used to help identify and price diamonds, including GIA, HRD, and IGI. These organizations focus on research and education, which they convey to their members and society.
The price of rough diamonds has historically been influenced by mining companies that control supply, notably De Beers. However, after the demolition of the De Beers cartel in 2001, the industry is now more fragmented so that higher diamond sales percentage occurs in the form of auctions and other forms of open market sales.
Financial feasibility
Synthetic diamond
Since the 1950s, techniques can produce diamonds at the core of a chemical or desired size. and with fewer deficiencies than natural diamonds. Although some manufacturers label their synthetic diamonds with serial numbers, there is no guarantee that given diamonds are not made by humans, although sometimes unnatural chemical compositions or defect patterns may indicate that diamonds are synthetic. It's much cheaper to produce diamonds through artificial synthesis than to mine them, although the cost of synthesis is still significant today. The inability to guarantee that diamonds can naturally undermine the premium prices currently charged to synthetic diamonds. However, new technological advancements have enabled some independent gem labs such as the GIA (Gemological Institute of America) to issue a particular Synthetic Diamond Grading Report that identifies diamonds as laboratory-grown and lasers inculcate them with "growing laboratories".
Polished diamond
There are several factors that contribute to the low liquidity of diamonds. One of the main factors is the lack of terminal market. Most commodities have a terminal market, and some forms of commodity exchange, clearing facilities, and central storage. Until now this is not there for diamonds. Diamonds are also subject to value added taxes in the UK and EU, and sales taxes in most other developed countries, thereby reducing their effectiveness as an investment medium. Most diamonds are sold through retail stores with very high profit margins.
Diamonds in larger sizes are rare, and their price depends on the individual features of the diamond. Fashion and marketing aspects can also cause price fluctuations. This makes it difficult to establish a uniform and easy-to-understand pricing system. Martin Rapaport produces the Rapaport Diamond Report, which lists prices for polished diamonds. Rapaport Diamond Report is relatively expensive to subscribe and, as such, is not available to consumers and investors. Every week, there is a diamond price matrix for various forms of brilliant cut diamonds, with color and clarity in band size. The pricing matrix for brilliant pruning alone exceeds 1,400 entries, and even this is achieved by simply grouping multiple levels together. There is a considerable price shift near the edge of the tape measure, so 0.49 carat (98mg) of rock can be registered at $ 5,500 per carat = $ 2,695, while the 0.50 carat stone (100mg) of the same quality list at $ 7,500 per carat = $ 3,750. This difference seems surprising, but in reality the rock near the top of the tape measure (or rarer colored varieties) tends to be slightly flattened. Some price jumps are tied to marketing and consumer expectations. For example, a buyer expecting a 1-carat diamond engagement ring (200mg) may not accept a 0.99-carat diamond (198mg).
There are many diamond grading labs, with each offering investors, consumers and dealers a similar diamond and verification assessment services, including the Gemological Institute of America (GIA) and CIBJO (Conféâté © dation Internationale de la Bijouterie, Joaillerie et OrfÃÆ'¨ vrerie) , also known as the World Jewelery Confederation. If standards set by such organizations are questioned, the consequences are felt across the diamond industry. In 2005, the GIA was sued by dealers who had supplied diamonds to the Saudi royal family after the accuracy of the GIA issued certificate was questioned. As a result of subsequent investigations, four GIA employees were dismissed for violating the GIA code of ethics. The GIA also claims to have changed some of its procedures to prevent such incidents from happening again.
The non-linear price of any size (weight) diamond means that it is unrealistic to exchange, for example, two and one-quarter carats (50 mg) for one half-carat (100 mg). With commodities such as gold, it is clear that one 20 gram bar is worth the same as two 10 gram bars, assuming the same purity. In most terminal markets, there should be a quality standard available, or a limited number of qualities, available in sufficient quantities to trade. This is the main factor affecting liquidity. The number of variables in diamond quality makes commodity prices as difficult, especially with rarer stones that deserve special handling over standard edition diamonds.
The diamond investment parameter is the high value per unit of weight, which makes it easy to store and transport. High-quality diamonds weighing 2 or 3 grams can be worth up to 100 kilos of gold. This highly viscous value and portability provide diamonds as a form of emergency funding. People and populations displaced by war or extreme turbulence have used this portable asset successfully.
In 2009, an exchange was launched by DODAQ to trade polished diamond categories. The DODAQ exchange is intended to be a terminal market for round, polished, and certified diamonds (the most liquid part of the market) and to host a centralized storage facility in Freezone. Exchange is an attempt to overcome traditional investment barriers from low sales tax and liquidity on the resale market.
In 2012 DODAQ nv and Antwerp World Diamond Center merged to make DIAMDAX. This is the first online diamond exchange to report the actual transaction price. Exchange provides its users with a fully automated trading platform and acts as a counter party for buyers and sellers, offering anonymity to its users.
Rare "colorful diamonds" like yellow, pink, blue and green have proven to be a safe investment for the last five years. It is based on the principle of supply and demand as well as the new economy entering the market. Rio Tinto has announced that it intends to close the Argyle Mine in Western Australia in 2016-2018 which will impact on the depleting supply.
In Global Diamond Report 2014, Bain & amp; Co reported that demand for investment diamonds accounted for less than 5% of the total value of polished diamonds. He also reported that diamond prices benefit from a 1.6x volatility lower than gold. Polished diamond grade investment characteristics are the highest color (D, E, F) and clarity (IF, VVS1, VVS2), weights ranging from 1 to 10 carats, triple-EX grading (Excellent Cut, Excellent Polish, Excellent Symmetry), and no there is fluorescence.
Polki (uncharted) diamond
The old diamond jewelry in India, especially from the Mughal period, uses unallocated diamonds. Mughal style jewelry has become popular in India recently featuring an unbranched diamond called "Polki" (which originally refers to the style of diamond splitting). Diamonds used in modern polished jewelry are low grade and do not have much investment value, although polished jewelry can be expensive. This diamond is supported by silver paper to allow light to bounce off. Kundan jewelry in India uses the same style, but uses glass instead of diamond.
Fund
In June 2012, Finanz Konzept AG launches the first physically actively managed diamond fund in the world, which invests in physically polished diamonds and colored diamonds.
In November 2012, PureFunds launches an Exchange Traded Fund listed on the New York Stock Exchange that invests in companies engaged in the diamond industry, rather than investing in physical diamonds. The fund ceased trading on January 23, 2014.
Mining company
Mining companies produce and sell rough diamonds. Given the high cost of diamond mining operations, many diamond mining companies are public and/or owned by the government.
The largest diamond company in the world is Alrosa, which surpassed De Beers in rust production in 2008. Alrosa is government-owned, so it is not listed on the stock market. De Beers is privately owned by Anglo American (85%) and the Botswana government (15%), so its shares are not traded on the stock market. The Oppenheimer family previously owned a 40% stake in De Beers, but it was sold to Anglo American plc in 2011. Rio Tinto and BHP Billiton are the next largest producers, but diamond mining is a small part of their commodity portfolio.
Recycled diamond
Diamond, because of its hardness, is one of the few gems that have a recycling market. Recycled diamonds are diamonds that have been polished and set into jewelry, then removed, sorted and cut back for resale to the diamond industry. This sector accounts for 5% -10% of the market supply. Whether it releases the capital to be reinvested in a more fluid inventory, or generates a greater margin on repurchased diamond jewelry, recycled diamonds are part of an ongoing strategy for many members of the jewelry industry. In 2012, Tacy Ltd. states that they are expecting a $ 1 billion diamond that is recycled to be returned to the market. In 2013, the forecast is $ 1.2 billion. Companies like White Pine Trading LLC, Danforth Diamonds or Rick Shatz Inc. specializing in recycled diamonds.
Market
Diamonds of a certain size, generally half a carat and above, are traded and processed by industry individually. Each has its own unique attributes and unique market place. Diamonds of this size, whether recycled or not, have the same market price. It is impossible to say the difference between a single carat diamond being recycled (as long as it is not broken) and a one-carat diamond "recently mined" with the same characteristics. The market does not distinguish the price.
Smaller diamonds are traded in similar stone packets, called 'melee', after the French word for mixture. Generally diamonds with exact same size, cut, shape, color and clarity are used in a single diamond jewelry. Otherwise, the stones will not fit and the pieces will not sell. Small recycled diamonds are treated differently from individual large stones. A single small diamond has limited value by itself. This is only useful if it can be matched with other similar diamonds, reset to jewelry and sold to customers, thereby creating value. Small recycled diamonds need to be sorted, reworked and resold to manufacturers in large packages to enable them to choose suitable stones to be installed in jewelry.
Diamond as an alternative investment
Diamonds are marketed as an alternative investment vehicle. In general, only fancy color diamonds will appreciate from time to time, compared to colorless diamonds whose value stays the same or goes down. Institutions such as Diamond Investment & amp; The Intelligence Center tracks all the selling prices of diamonds at auction as long as there are records to track diamond prices and price projections.
See also
- Alternative investment
- Gold as an investment
- Palladium as an investment
- Platinum as an investment
- Silver as an investment
References
External links
- Graph of trend evolution trends in diamond prices, Antwerp World Diamond Center, March 2015.
- China hacked diamond market, WSJ blog, China RealTime, February 2012.
- PriceScope Diamond Price Chart, update August 1, 2012.
- Have You Tried Selling Diamonds ?, E.J. Epstein, The Atlantic, 1982.
Source of the article : Wikipedia
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