Are diamonds a good investment? Why or why not?

Diamonds Regain Their Sparkle Despite Price Increases.
Increasing jewellery demand has led to a rise in gems’ values, and internet sales have increased.

The price of polished diamonds has risen to the highest level in nearly a year and a half.

According to the reopening of individual economies in Asia and increased jewellery sales across the globe over the holiday season, diamond prices rebounded from a coronavirus-driven slump.

An index compiled by the International Diamond Exchange shows polished diamond prices are up 5.1% from their lowest point in March, bringing them to their highest level in nearly a year and a half.

As a result, all links in the diamond industry—from Russian miners to India’s diamond cutters to New York’s luxury boutiques—were closed down or saw activity curtailed.

Diamond jewellery sales have been growing steadily since Asian retailers started reopening last summer, followed by those in other parts of the world, analysts said. With international vacations on ice and restaurants closed worldwide, wealthy individuals are buying diamonds with extraordinary enthusiasm.

Polished diamond-price index
Source: IDEX, FactSet
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“This is the most bullish market for diamonds I have seen in probably a decade,” said Paul Zimnisky, founder of research firm Diamond Analytics.

Because diamonds come in various shapes, sizes, colours and qualities, the industry lacks a benchmark price. But market watchers say both rough, mined diamonds and polished stones bought by consumers have seen their prices approach pre-pandemic levels.

A one-carat polished diamond of slightly above-average quality currently sells for $5,900, Mr Zimnisky said. That is up 14% from a low point in April, while an equivalent rough diamond rose 18% in that time, he said.

Prices popped in December, thanks to strong holiday sales and pent-up demand that built during lockdowns. December is typically a substantial time, with jewellery sales naturally rising around 120% from November, said Edahn Golan, who runs an Israel-based diamond-market research firm. This year they jumped 160%, he said.

Still, the pandemic’s impact on jewellery sales hasn’t been uniform. Sales of diamond stud earrings saw the most considerable year-over-year growth of all jewellery categories in 2020, Mr Golan said, as the desire to look good in video calls boosted demand for adornments worn from the shoulders up.

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The pandemic also pushed the industry to embrace new technology at a faster rate. Before the lockdowns, retailers were sceptical that consumers would be prepared to buy expensive diamonds online. But strong take-up for internet offerings has helped diamond sales recover while modernising some businesses.

“It has forced our industry to go to a place that we have been slow to get to,” said David Kellie, CEO of the Natural Diamond Council.

The diamond market has fewer global demand gauges than other, more widely traded commodities, presenting unique challenges for analysts.

Google searches for “diamond ring” in the U.S., the country that accounts for around 50% of the world’s diamond consumption, can be a good proxy, said Kirill Chuyko, head of research and mining analyst at Russian brokerage BCS Global Markets. Searches for the term slumped in March but have since recovered to prior levels.

Google searches for ‘Diamond Ring’ in the U.S. by year
Source: Google
PEAK=100
2020
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With central banks slashing interest rates to stimulate economies—and some taking rates into negative territory—diamonds are also getting a lift as wealthy individuals opt to put their money into real assets rather than pay a bank to hold it.

Amma Group, an investment house specialising in coloured diamonds, has seen an increase in the number of its clients who would instead take their earnings in the form of physical diamonds than in cash to protect their wealth from negative interest rates Mahyar Makhzani, the group’s co-founder.

The group, which is set to launch its fifth fund later this year, pools investors’ money to buy some of the rarest coloured diamonds at auctions or from individuals and miners. It then holds or sells the diamonds for a higher price, using the profits to buy other stones that it predicts will go up in value. After a set period, the fund sells its diamonds and returns the money to investors.

“There are not more than 100 red diamonds in the world,” Mr Makhzani said. “It’s like owning a Picasso: You know he isn’t going to be making any more.”

Rising demand has also allowed diamond miners to raise prices on the rough diamonds they sell to manufacturers. Since the pandemic, analysts said that Russia’s Alrosa raised prices in January, while Anglo American’s De Beers believed to have increased its prices for the first time since the pandemic. The company doesn’t publicly disclose its prices.

Despite the incentive, the diamond-mining giants are likely to keep supply tightly controlled to maintain higher prices, Mr Chuyko said.

The strength of diamond demand was a rare tailwind for luxury brands during a difficult 2020. LVMH Moët Hennessy Louis Vuitton SE, which last month completed its acquisition of jeweller Tiffany & Co., said recently that jewellery sales were a bright spot in the fourth quarter. Compagnie Financière Richemont SA, which houses jewellery brands Cartier, Van Cleef & Arpels and Buccellati, said jewellery sales were its best performing sector in the final three months of 2020.

Some analysts are sceptical. However, diamond prices can keep rising. As economies reopen and international travel resumes, the diamond industry will face renewed competition, particularly among the younger consumers seeking to attract, Mr Chuyko said.

“A diamond ring will get you one or two pictures on Instagram,” he said. “But if you go on holiday to Spain, you might get ten pictures per day.”