Alternative Investment Series: Diamonds

In 2022’s global investment landscape, it is important to take note of market trends and concurrent policy factors in order to make the most of unique circumstances. Investors across the world are increasingly aware of the necessity of nuanced diversification strategies that can yield returns while limiting exposure to volatility and inflation. Alternative investments are growing in popularity because of inherent appeal they hold, and the considerable practicality that they offer.

 

Bloomberg reports that the popularity of luxury jewelry as an asset class is reaching new heights in 2022. Funds invested in alternative assets, such as diamonds, wine, watches, antiques, and fine art allow investors to bypass intermediaries during a period when banks have to contend with rapidly changing regulations and currency fluctuations. Allocating funds to heritage collectibles and precious assets can provide protection and profit in equal measure. In this light, we are featuring guest with contributions from leading alternative asset specialists. Anuj Jasani, Managing Director of 5C Group, a premier diamond trading and jewelry design firm in the Asia-Pacific has provided input for this article.

 

To learn more about Anuj and 5C Group, you can visit their official website.

 

  • Everything you need to know about diamonds

 

Diamonds are the most rare and precious substance that nature has given humanity. The relationship between the inherent value and cultural significance of gemstones can be traced throughout the development of civilization. Amin Jaffer, the former International Director of Asian Art for Christie’s, cites an old expression in his lecture on gemstones: the value of a jewel can only be understood by a king, or by a jeweler.

 

Diamonds have symbolized power and visionary leadership in every culture. While DeBeers is widely credited for creating the worldwide luxury consumer market for diamonds in the 20th century, the universal appeal of precious stones arises from their cultural connotations of longevity, prosperity and enduring purity, which in turn derive from their association with perpetual, enigmatic elements of nature that have been sought after throughout history. 

 

For as long as society has distinguished status, diamonds have been at the forefront of the consensus on credibility. In ancient Greece and Rome, diamonds were not traded as precious jewelry but were nonetheless revered, and ownership was restricted to the rich and powerful. In Medieval Europe, rare diamonds with unique characteristics, such as the Dresden Green, have symbolized the mandate of dynasties, states and empires.

 

These characteristics set diamonds apart in contemporary society, where they are prized by celebrities and discreet private collectors alike. Their appeal transcends culture and the global demand for diamonds only continues to grow, as emerging economies now account for a growing worldwide middle class. BRIC nations (Brazil, Russia, India and China) in particular show strong demand for diamonds. The investment landscape for diamonds has steadily and consistently grown over time, and the precious stones can be a stable and effective investment. However, it is important to understand the practicalities of the diamond trade – including both its advantages and disadvantages- before making any decisions. 

 

  • The benefits of investing in diamonds

 

Diamonds have proven long-term value. Their price increases over time, and as the hardest known naturally occurring substance their resilience is guaranteed. This longevity makes it possible for individual diamonds to take on provenance over time, as family heirlooms and legacy assets.

 

It should be noted that the extent to which individual diamonds gain in value and status is subject to a variety of factors, some of which are subjective- what can be guaranteed is that a typical commercial- grade diamond can keep pace with the rate of inflation after its purchase. It should also be noted that while very-rare diamonds, which are prized for their exceptional properties such as their carat weight, color, or expert craftmanship in the cut can be immensely valuable, they are not necessarily as practical for investment purposes.

 

In addition to providing safety from inflation, diamonds can also shield against volatility.

As a sanctuary from market instability and institutional failure, diamonds can be a prudent choice during a crisis, because they provide flexibility, which can be crucial if unpredictable situations arise.

 

Owing to their small size and weight, diamonds are simple to transport. Investors do not face the necessity of organizing logistics to move diamonds at short notice- portability ensures that the assets can stay in one party’s possession without intermediaries.

 

Rather than relying property management services, anyone who invests in commercial grade diamonds can store them in a safe deposit box. When the time comes to liquidate the asset, the process is usually efficient and expedient for commercial-grade diamonds, with a certain level of value guaranteed.

 

Although diamonds do not have a standardized trading platform, strong demand and universal appeal ensure high liquidity. However, there are several potential pitfalls to be aware of.

 

  • Factors to consider before investing

 

It is important to understand that while gold is sold by weight at market value, each diamond is unique. This is part of their appeal, but it also presents a challenge. Because no two diamonds are alike, the valuation process- and buyer preferences- has subjective factors. This can naturally complicate transactions.

 

It is therefore essential to make an informed choice when purchasing a commercial-grade diamond. It should also be noted that only exceptionally rare diamonds yield a high rate of return and they are only sold through auction houses. This type of sales process can take very long and incur costs, because auction houses retain a percentage of the sales proceeds.

 

For commercial-grade diamonds, there are certain guidelines to follow that can ensure a quick, smooth resale process:

 

Diamonds certified by the industry’s most respected grading laboratory, the GIA, are always easier to resell. Certain shapes, colors and clarity levels tend to be more popular, and will therefore ensure a faster resale process. Finally, you should ensure that you purchase a diamond at the lowest possible price, avoiding Value Added Tax by carrying out the transaction in a jurisdiction where purchases and sales are not subject to VAT, such as Hong Kong. Be sure to consult an experienced professional before making any decisions.

 

We are committed to helping our clients navigate the global economic climate with confidence. Effective positioning during short term cycles can often translate to great gains in the long run. By providing personalized services, we can help you develop a strategic asset allocation plan tailored to your unique circumstances. We will also be publishing more alternative investment guides. In the meanwhile, should you have any enquiries, you are always welcome to contact us for a free initial consultation.

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