Intrinsic and tax friendly profitability

Intrinsic and tax friendly profitability

Diamonds carry an intrinsic & sustained value accumulation capacity.

Recent indicators and studies project a further increase of the diamond prices for the coming decades. This anticipated price increase is mainly triggered by the combined effect of favorable supply and demand trends:
- Increasing demand in the BRIC countries (India, China, Brazil, Russia)
These countries are characterized by an exploding economy and prosperity, resulting in a growing middle class. India,
for example, was for centuries dominated by the tradition of diamond and gold. But these unique signs of wealth were, until
one decade ago, a privilege of the elite population, with a nearly inexistent middle class. The current uprising in India &
China of this rapidly growing middle class who is eager to take over the habits of the elite population, has a direct upward
effect on the pricing of diamonds on the world market.

- Decreasing supply due to limited natural resources and a depleting mining capacity

The global mining industry produces an average of 120-130 million carat gemstones a year, of which diamonds are an
important part. Even though this seems a lot, it’s a strong decrease in comparison to previous years. In 2007, the
production came down to 168 million carat, and the previous years the average production was still far above 175 million
carats. For the current operational diamond mines, it’s certain that the operating costs will structurally increase, because the
exploitation and digging activity is forced to descend to deeper layers. In other words, even without a reduction in
production - quod non - the diamond prices will continue to rise. And even if new diamond mines would be discovered (an
extremely rare event looking back to the last decades), it is prone to be accompanied by substantially increased operating
costs, due to the likelihood that these new mines will be located in difficultly accessible areas.
Moreover, as diamonds do not undergo any alteration over time, they are easy to maintain. The average diamond is approximately 2 million years old. This fact on itself adds of course on the long term value of diamonds as there is no depreciation element to take into account. Furthermore, profit gains on the sale of diamonds are generally speaking not taxed, assuming the seller is no active professional in the matter.
Finally, it should be reminded that the long term profitability of diamonds depends in first instance on the price at which one has purchased them. The projected price increase – as explained above – will strongly dilute if the (investment) diamonds are not directly bought at the source. In other words: the further you purchase your diamonds away from the source (thus where they are polished), the more likely your future profit potential will have been (partly or even entirely) evaporated via margin addition by intermediate parties. That’s why it is crucial to cooperate with parties who are able to purchase directly at the source.
Click on this link for more background information about the profitability of diamonds.
The BAUNAT difference
Whereas diamond (jewellery) retailers typically add between 15-50% mark-up to cover their higher purchase expenditure, overheads, marketing & intermediation costs, BAUNAT diamonds are priced at their underlying investment value. Reason is that BAUNAT has the unique capacity to purchase its diamonds at the best possible prices, which consequently offers you the best outlook for future profitability. Read here more about BAUNAT’s unique diamond purchase capacity.
Intrinsic and tax friendly profitability - Baunat Diamonds