Diamonds: the Gift That Keeps Giving

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Diamonds: the Gift That Keeps Giving

By Tim Maverick, Commodities Correspondent

Still thinking about that perfect Christmas gift for someone special? Still mulling over a good investment going forward?

Two distinct questions with two totally different answers, right? Maybe not . . .  Diamonds could be the answer to both.

For centuries, diamonds have served as a preserver of wealth, along with gold and silver. And like precious metals, diamonds are also portable and usually liquid.

Along with being a special gift, diamonds can be a great portfolio diversification tool. Especially now that the outlook for diamonds is rather rosy, according to the consultancy Bain & Company.

A Sparkling Outlook

Bain says in a recent report that demand for diamonds is strongly increasing in the top three markets for diamond jewelry – the United States, China, and India – at a high single-digit rate for 2014.

China is quickly catching up to the United States as the No. 1 importer, as giving diamond engagement rings becomes a part of mainstream Chinese culture. Such a practice was practically unknown a mere decade ago.

China alone now accounts for 15% of the global diamond market, from less than 3% in 2003. Most experts believe the combination of the Chinese and Indian markets will equal U.S. diamond demand in the next decade or so.

Against this backdrop, there’s a rather limited supply growth. There hasn’t been a major diamond discovery since 1997. Last year, rough diamond output – measured in carats – rose by only 2%.

Going forward, Bain agrees with others in the diamond industry who say that, beginning in 2019 or 2020, diamond output will actually decline by about 2% annually. It’s a result of aging mines, with some major mines having only about 10 years of life left.

De Beers, which is part of Anglo American PLC (AAUKY), said in September, “Unless major new discoveries are made in the coming years, supply can be expected to decline gradually from 2020.”

Stock Up Early

So how can individuals invest in diamonds?

Of course, one can buy into a diamond mining company. In the past, I’ve mentioned both Dominion Diamond (DDC) and Mountain Province Diamonds (MDM).

But there’s another way that allows investors to directly invest in high-quality diamonds . . .

It’s a site called InvestDiamond.com, which opened its door at the start of this year and has about 2,000 members. The site is an offshoot of LinGold.com, which allows investors to purchase gold directly online.

Instead of buying a whole diamond (very expensive), InvestDiamond allows their members to purchase as little as 0.001 carat of a certified, investment-grade diamond. That comes to around $15!

Of course, there are fees on both buying and selling. But if you sell your diamonds to another member, the fee is only 1% instead of 7%.

The diamonds are sourced from Antwerp and are stored in a Swiss vault in a free port zone (which avoids value-added taxes).

Investors should always do their own due diligence before investing money at InvestDiamond or any other company, but it does look as if the company has come up with a good idea – investing in diamonds is no longer just for the elite, but also for everyday investors.

And “the chase” continues,

Tim Maverick

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By Tim Maverick