Are Loose Diamonds a Worthwhile Investment?
There are many reasons people buy diamonds. Whether purchasing loose stones, an elegant diamond necklace with multiple stones, or a diamond engagement ring with one stone, purchasing a diamond is an investment that you hope will appreciate over time.
Of course, when you buy a diamond ring or another item of jewellery as a commemoration or celebration piece, you are investing in your relationships. Diamonds hold personal, intrinsic value that cannot be estimated using dollars and cents.
However, for large rare diamonds, either loose or fashioned into jewellery, investments are often made for long-term payoff. The belief is that diamonds will preserve their quality and rareness over time and that the market value will continue to rise, thus making them substantial assets to hold.
But is that a safe assumption to make on a grand scale? What can we learn from history that would indicate that diamonds are a worthwhile investment?
Diamond’s Historical Value
In a recent blog post, we covered the history of diamonds from their earliest use. To recap, the first known reference to diamonds came from archaeological discoveries dating back some 3000 years ago. At the time, it is believed that diamonds were exclusively used for industrial purposes. Ancient people leveraged diamond’s strength and durability to forge tools and make drills.
Around 2400 years ago, in ancient India, recovered texts reveal that ancient people began to revere diamonds for their unrivalled hardness and ability to refract light in fascinating patterns. In addition to industrial use, diamonds were used in religious or mystical talismans and later were considered to have healing properties.
It wasn’t until the Medieval Period when diamonds were first used for traditional jewellery, a status they have held since. Tracing the history of diamonds shows us that man has found more and more uses for diamonds since their discovery and has made them a coveted commodity.
Modern Market Values
Over the last 15 years, the global annual production of rough diamonds was around 145 million carats, with approximately 20% of that yield being considered “gem quality”. Of these gem-quality diamonds, most were smaller than two carats.
This shows that smaller sized diamonds are not as rare as one might think. Their value may be high at the point of the initial sale, but that does not necessarily mean that they will appreciate in value over time.
When we think about the market value of a diamond, we need to consider the factors that go into the final price. A customer buying a diamond from a shop is not just paying for the diamond’s raw value; they are paying for things such as mining costs, transportation fees, and store markup. If they hold on to that diamond for a few years and look to sell it, they may not be able to sell it at a profit because buyers of second-hand diamonds will only pay for the material value of the diamond, not the associated costs.
Extrapolating this out to larger sized diamonds, one can deduce that the associated costs may increase as the diamond’s size increases, but will decrease as a percentage of a diamond’s market value. We can then conclude that while all diamonds will appreciate over time, the best investment diamonds are larger, rarer stones.
The Future is Opaque
With the advancement of technology creating synthetic diamonds, coupled with the general population’s acceptance of wearing synthetic diamonds, the future of diamond ownership as an investment is not as straightforward as it once was. Over the past 50 years, the value of a top-grade, one-carat diamond has increased around 14% per annum, though it is uncertain whether this will continue over the next 50 years.
What does seem more certain is that large, rare diamonds will continue to increase in value. We can assume this because there is no threat that synthetic diamonds will make them obsolete or that miners will suddenly be able to unearth larger diamonds. These stones will remain large and rare, and their material value will only go up.
So, are diamonds a good investment piece? If you are lucky enough to come across a large, rare diamond for sale and are in a financial position to invest in it, then you can feel confident your investment will pay off in the long term. But if you are hoping that the diamond necklace you bought for your significant other will appreciate in value over time, you are better off enjoying it for its personal significance instead.