Marilyn Monroe’s performance of Gentlemen Prefer Blondes certainly popularized the saying, “Diamonds are a girl’s best friend.” But, recent trends in the diamond market now also suggest they are an investor’s best friend. It’s believed that reductions in production and increases in demand are soon to cause the value of diamonds to skyrocket.
In the wake of the 2008 recession, big dollar investors looked for new, non-monetary realms in which to invest. Diamonds provided a highly-portable option. The demand caused values to jump 70 percent between mid-2009 and early 2011. As fear of another economic downturn subsided, so too did the value of these shiny gems. Their value crashed by roughly 30 percent.
A Slowdown in Production
During the recession, rough-diamond producers responded to the decrease in prices by cutting their planned output. As the economy recovers, so too has diamond production, though only modestly says Bain & Company in The Global Diamond Report 2013. By 2019, they predict that rough diamond production will start to drop by 1.9 percent a year.
This could have to do with some technical problems, as it did during the recession. The better bet, analysts at Citigroup suggest, is this decrease relates to the declining discovery of kimberlites. (Kimberlites, also called blue ground, are the host rock for most diamonds.) Additionally, as fewer diamonds are found, stockpiles will dry up.
Growing Demands
Demands for diamonds in the United States continues to be steady. Bending knees and heartfelt proposals have long been tied to the tradition of diamond-studded rings in the “New World”. But, the trend has become equally as popular in China and India where more and more engaged couples are excitedly displaying their love with these precious rocks. In Shanghai alone, the number of engaged couples sporting diamond rings has roughly doubled.
As the middle class continues to grow in these two population hubs, it’s believed that so too will the demand. Jewelry sales rose a 1.8 percent from 2011 to 2012, topping out at $72 billion. The potential for skyrocketing prices is so great, Forbes has even suggested couples pre-plan their engagement ring.
Valuation (Determining a Diamond’s Value)
Appraisal standards are not standardized leaving diamond investors and potential diamond investors in a risky frontier. Uncertainties such as quality, mining practices, feuding warlords and aggressive terrorists make investing far from a sure thing.
Yet, GemShares has devised a standardized valuation practice known as the GemShares Global Investment Grade Standard (GIGS). PR Newswire says the GIGS gives investors a set of, “Gemological, proportional, optical and light-behavior guidelines.”
However, regardless of the GIGS or any other valuation standard, one thing is certain – placing the value on this expensive commodity is best left to the professionals. Trying your eye at pricing diamonds might be a fun party game, but when it comes to actually investing your wealth, it is wise to talk to those with a good deal of experience.
Beyond the Investor
Rough-diamond producers are ramping up productivity to meet the growing demands. While they are seeing a growth in revenue, it’s currently the middlemen who are enjoying the biggest influx. Polishers and cutters have been able to double and even triple their margins as the needs have increased.
On the retail side, stores are looking for ways to secure a long-term stock of quality stones. Some are even looking for ways to invest in the supply chain itself. But, if the discovery of kimberlites continues to decline, this investment could prove fruitless.
About the Author
Nicole is a blogger for the mining industry. She enjoys researching and writing about anything to do with mining. In her opinion, www.allightsykes.com/ offers the best mining products on the market.