Investing in diamonds and transparency ... a challenge?

It is not a secret anymore that there will be an even greater demand for diamonds and that the offer can’t follow. Everybody knows what this means: the prices will rise. But investors aren’t giving up and are using this trend to their advantage by setting up investment funds, even though they are being hampered by a lack of transparency and are experiencing difficulties in entering the market.

Constant diamond prices

Investing in diamonds is interesting because of the constant value of diamonds in the long term. If the economy slows down or there is an economic crisis, one will eagerly invest in reliable business with reduced price volatility, such as diamond, gold and silver. Between 2008 and 2010 was the diamond market very powerful with strong prices. After a small decline in 2010, the prices went back up in 2011 and became ' solid as a rock '.

The influence of emerging markets

In the diamond industry report by Bain & Company is described that the demand for natural diamonds will continue to rise annually with 5.9% until 2020. However, the offer of diamonds will only grow with 2.7% per year. The cause of this projected increase is largely attributable to the emerging markets such as China and India.

Baunat Diamonds also notes that the Chinese and Indians orient themselves more and more to the Western world where it is common to gift diamonds for engagements and marriages and therefore they are investing more in diamond nowadays. In these countries the standard living of the middle class increases exponentially. Add this to the fact that no new diamond mines have been discovered in recent years and everything becomes crystal clear. 

The report by Bain & Company goes even further and claims that China and India will vouch for 50% of the increasing demand for diamonds by 2020. Hereby they will become the biggest diamond jewellery market with a share in the global demand for diamond by 36%, while this is now ' only ' 25%. 

Investment funds

How come that despite this increasing demand and decreasing supply, the diamond trade is standing for a challenge? Investing in diamonds is clearly an attractive matter, no?

  • The diamond trade is being hampered by a lack of transparency and liquid assets. Diamonds are not the same ' common good ' such as gold for example. Each diamond is unique and has to be judged against a number of criteria to determine the individually pricing. The price of gold is simply universally determined by weight.
  • One of the biggest challenges in diamonds is to create economies of scale. If you are a Tiffany's or Harry Winston, then you need volume and consistency. But consistency is not evident in the diamond sector.

This explains the emergence of investment funds. Multiple investors bring their investment money together and invest in diamond on a larger scale, with experts on their side. In 2008, the first such fund was made public. Diamond Circle Capital Fund was active on the London Stock Exchange. The shares, however, plunged in 2012 and the fund was cancelled.

Baunat Diamonds is now the worldwide reference for investing in diamond. They buy at the source through a large network of suppliers, and this way avoid all "middle men" and offer transparent prices. A team of experienced diamond experts accompanies both individuals and businesses world-wide at the development or optimization of their investment portfolios.

Author: San Meuleman

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