Does investing in diamond as raw material continue to be a good idea in 2017?

  • 2016 was a good year for raw materials
  • several indicators suggest that growth in 2017 will stagnate

In 2016 raw materials made a revival. The question is whether this trend will continue in 2017? Does investing in diamond continue to be a good idea?

The general tenor among analysts is cautiously positive. Raw materials will indeed evolve positive, although the growth will be less strong comparing to last year. In addition political events also threaten to disrupt the market.

2016 was a good year for investors in raw materials. The CRB raw materials price index rose by 13 percent, after five loss-making years. The CRB Index is for raw materials as what the AEX is for shares. The index enjoys less prominence, which is not surprising given the many years of declining raw materials prices.

Hans van Cleef, economist at ABN AMRO: "There is still growth potential for the raw materials market as a whole, however, no longer like in 2016. Oil prices doubled compared to the deepest point of last year. Repeating such a bound in 2017 is very unrealistic ". Also the situation in the US will not contribute to greater growth. "The dollar has been on a rise since the election of Donald Trump. Since raw materials are traded mainly in dollars, a more expensive dollar will have an impact on the demand. Possible new increases in interest rates in the U.S. will make the dollar even more expensive and slow down the growth of raw material prices." But the message remains the same: investing in raw materials offers return.

Barclays, the British financial services provider, sees the situation less on the bright side. In their research report titled "The Black Swans of 2017" they claim that 2017 can be an eventful year for raw materials. These analysts warn for a number of events which haven’t been taken into account in the current market prices. Among other things they have been given thought to the increasing populism and protectionism, through which political events may have an equally big impact on the raw material market as the economic climate.

Raw materials expert Boris Cukon is not optimistic about raw materials facing an oversupply, such as iron ore, aluminium and coal. Raw materials that can be assured of rising prices are copper, zinc, uranium, gold and diamond. The prices of these raw materials are driven by a structural deficit. The demand for these substances remains higher than the offer and this will continue in 2017.

ABN AMRO is not excited about the gold price. Their analysts see no reason why the gold price would rise as long as inflation remains under control and long-term interest rates in the US continues to increase.

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Author: San Meuleman

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