Investors are looking for new forms of investment, the behavior of the main Central Banks, the slowdown in China, the fall in metals, the sharp rise in stock markets, all of these are just reasons for investors to look for other investment alternatives For this reason I want to start the year by exposing the growing diamond market and how a common person can access this type of market.
To begin with, we must know that Diamond investment is an allotrope of carbon, that is, it is a variation of carbon with a different molecular structure. Diamond has the highest hardness and thermal conductivity of all materials known to man. Most natural diamonds are formed under conditions of extreme pressure and temperature, existing at depths of 140 km to 190 km in the earth's mantle. Diamonds are brought close to the Earth's surface through deep volcanic eruptions by magma.
Diamonds are valued according to 4 characteristics, which are called the 4C:
1- CUT (cut)
The beauty of a cut diamond lies in its behavior with light. Those with fine proportions and good symmetry, enhance its interaction with light and provide it with greater brightness and sparkle.
2- CARAT (weight)
The weight of a diamond is expressed in “carats”, or in English “carat”. One carat (ct) of diamond equals 0.2 grams of weight. Normally, diamonds of more than 0.5ct start to have a significant value, below 0.5 the market value of diamonds is not very high.
3- CLARITY (purity)
The purity is determined according to the type and number of internal defects (inclusions) that the diamonds present, observing them with a 10x magnifying glass.
4- COLOR (color)
The color of a diamond is very important, in recent years the diamonds that have appreciated the most are colored ones, such as pink for example, because the main diamond mine of this color in Australia its facilities will close in 2020.
What are the current uses of diamond?
1- Gem: Unlike precious metals, such as gold or platinum, gem diamonds are not traded as a commodity. Contrary to popular belief, there is a well established market for the resale of polished diamonds and brilliant cut Diamond investment.
2- Industry: Industrial diamonds are valued mostly for their hardness and thermal conductivity. The dominant industrial use of diamonds is cutting, drilling, sanding and polishing. Even in the future it is already considering using Diamond investment as a portable hard drive, here is a link from the BBC where it is explained:
3- Investment: Diamonds as an investment show several advantages at this time. One of them is the gains in value without taxes, the increasing liquidity, the solidity of the price through the years, the fact that it is not a speculative good and this makes it less affected to the world economic situation.
Usually luxury goods lose their value for the most part, diamonds do not. Also, a very important point, in recent years the average production of precious stones has fallen. Why? Mining and excavation must be done in deeper areas, which increases operating costs. Which leads to a lower supply of diamonds, and in the future a lower supply will continue to increase the price of the diamond.
Here I show you a graph of the nominal evolution of the price of a diamond per carat:
Remember that in order to value a diamond, the 4Cs are important, each diamond is a unique element, its value will depend on its cut, weight, purity and color, as it is not a homogeneous element, its valuation must be done in the hands of a certifying company, these companies they also help you when you want to sell the Diamond investment, getting you an interested buyer.
Can a comparison be made between Gold and Diamond as investment instruments?
The valuation of these two resources is completely different. Each diamond is a unique piece, with its own characteristics, therefore, the valuation is carried out in a totally different way than with gold, which is a homogeneous element.
Mention lines above that the costs of extraction are becoming more and more expensive, due to the fact that you have to dig deeper and deeper, this will reduce the supply of diamonds in the future, this will increase the price of Diamond investment, but mainly diamonds larger, because they are scarcer. For future investment, it is more advisable to invest in diamonds between 1ct and 5ct, as it has a good liquidity-profitability ratio.
It might be thought that to invest in a precious stone such as diamond, large amounts of money must be needed, it is not so much so, a person can buy an investment diamond from 4000 usd, and after a few years generate a return, remember that type of investment is not speculative, and would not be appropriate for people who seek high returns in a short time.