A rock-solid investment is hard to come by in these uncertain times – but a diamond is a sparkling option you might want to consider.
Over the past 12 months, the average price of this gemstone has risen 6.4% while it has risen 6% over five years, according to the industry’s Diamond Price Index.
But some of the highest quality diamonds have seen their prices rise by more than a third in one year and have risen by almost 60% in five years.
Set in stone: some of the highest quality diamonds have seen their prices increase by more than a third in one year and almost 60% in five years
Such returns put most stocks and stocks to shame. Over 12 months, the FTSE All-Share index fell by around 2% while it rose by 1% over five years.
Always seek professional advice
Diamond trader Tobias Kormind, co-founder of online jewelry trader 77 Diamonds, warns that while exciting, the diamond market is unregulated and fraught with pitfalls, so expert advice is essential.
He says: “Few of us have any idea of the true value of a piece of jewelery at first glance – whether it is a worthless piece of jewelery or a priceless heirloom.
He adds: “While it is essential to seek advice when buying and selling, you still need to be careful as consumers are taken advantage of, overcharged or paid too little for a gemstone in their possession.”
Kormind believes that anyone interested in dealing in gemstones should speak with a member of the National Association of Jewelers, which has a code of conduct “based on honesty, integrity and professionalism.”
Still, he warns that big stores could try to sell diamonds at retail rather than wholesale, which would eat away at future profit potential.
He adds: “As an individual, you should be aware that there is VAT to be paid on the purchase of diamonds, which you will not recover on the sale, unless you are subject to VAT.” This means that the value of the stones will need to increase by at least 20% for you to make a profit.
There is also a minimum 10% capital gains tax payable on any profit made on stones worth more than £6,000 sold above an annual exemption limit of £12,300 .
Study the “four Cs” to assess quality
Gem values are based on the “four Cs”: carat, color, cut and clarity.
The carat is the measurement of the weight of a gemstone, one carat being 200 milligrams. The bigger the stone, the more valuable it is. But a one-carat diamond can be worth between £1,000 and £20,000 or more, depending on its colour, cut and clarity.
For a diamond, the “sparkling white” it is, the higher its price will be. Yellow hues tend to depreciate it. If you opt for a slightly pinkish rock, you may end up paying a lot more than for a white diamond, as their prices have skyrocketed in recent years as they have become fashionable.
Kormind says: “The Argyle Diamond Mine in Australia is renowned for its pink diamonds, but closed a few years ago causing a drop in supply. Over the past five years, some pink diamonds have more than tripled in value.
He adds: “Of course, this does not mean that prices will continue to soar, but it does show how values can rise unexpectedly.”
Cut is how a craftsman has chipped the stone to make it shine – this is also another key consideration.
Clarity searches for imperfections and unless you are an expert at looking through a “magnifying glass”, a minor blemish is likely to go unnoticed.
Consider how the stone could be a liquid asset
Gemstones should be viewed as a long term investment – typically held for five years or more. It is usually better to buy a smaller top quality diamond, such as a one carat stone worth over £5,000.
These are referred to as “liquid assets” in the gemstone world because they tend to be more marketable than a larger rock of three carats or more. The commission on sales through a merchant is approximately 5% of the price.
Require a certificate of authenticity
Appraising gemstones with an untrained eye is extremely difficult, but you can get proof of quality with a professional certificate.
The most respected is the international certificate from the Gemological Institute of America (GIA). It is actually a report on the quality of a diamond and allows you to compare it with other stones. Thomas Schrock is the founder of online retailer The Natural Gem. He says: “If a stone has a certificate, it should mean that it has been analyzed by a trusted laboratory.”
There are other certificates including the Ceylon Gem Lab (CGL) certificate issued in Sri Lanka; the certificate Gemmological Laboratory Austria (GLA) and the Swiss Schweizerische Stiftung fur Edelstein-Forschung (SSEF).
Don’t forget the other colored gemstones
Although diamonds are the most valuable gemstones, other gemstones such as emeralds, rubies and sapphires have also seen their prices rise in recent years.
Schrock of The Natural Gem says where a gem comes from can impact its value. He says: “A ruby from Mozambique may be as high quality as a ruby from Burma, but the Asian stone is worth a third more because of its heritage – Burma has an excellent reputation for its gemstones.
He adds: “The value of a gem is a combination of its intrinsic value, its appearance and its history, including its origin.
Buyers should beware of “blind buying” from street vendors when abroad. In Colombia, emeralds may be oiled to enhance their color while sapphires from the Indian region of Kashmir and rubies from Sri Lanka may have imperfections filled in to hide their true value. Certificates prevent such tricks.
Have your gemstones appraised and protected
Diamonds should be kept safe and insured. Find a local member of the Institute of Registered Valuers for a professional valuation – for which you could pay from £50 per item. Take photos and keep all documentation, including purchase receipts and certificates of authenticity, separate from jewelry.
Insurers usually ask people to itemize gemstones or jewelery worth £1,000 or more. Individual cover can cost 1% of its value – so something worth £10,000 can cost £100 a year to insure. But as part of this agreement, insurers may also want you to keep your valuables in a safe. You should make sure you get a professionally rated secure fit for your valuables.
Try mining-exposed investment funds
Exposure to diamonds and gemstones is also possible through investment funds. Examples include JPM Natural Resources, which holds about a fifth of its portfolio in mining companies that seek out diamonds as well as precious metals.
You can also invest in publicly listed multinational mining giants like Anglo American. But it is not without risks. Over the past year, its share price has fallen by 8%.