Diamonds have a special magic. It’s hard to imagine something that carries more value per unit of volume and weight. A crystal the size of his fingernail is as good as new “rolls-Royce”. Diamonds unique firm not only physically, but financially as well. The value of the reference stone (1 carat, the highest level of cut, clarity and colour) has grown since 1960 from $2700 to $21 000 per carat.
Ceiling the price of gold due to the huge volume of precious metals in the vaults of Central banks and on hands at the population. As soon as gold reaches another price record on the market there are many sellers. After each rise in price during the crisis, gold prices are retreating, and the range of deviations is from tens to several hundred percent. The unfortunate timing of investment can bring buyers of the precious metal seeking protection from inflation, large losses.
An interesting alternative to gold can be a investment in diamonds. Gems are still rather emotional purchase than an investment. However, in the near future, technological and financial innovations will make the diamonds a full-fledged investment asset.
One hundred dollars invested in this diamond in the 1960’s, today would have turned into $774, while the purchasing power of the banknotes have since fallen by 88%. Diamonds showed the dynamics of superior performance of the US dollar in 66 times at the time, as the American currency has lost an average of 3.7% per year, diamonds rose in price by the same 3.7 percent for nearly 60 years.
Diamonds are precious, cherished and steadily increasing in price. Why, then, the stones never became popular among investors? Not because of the fact that “diamonds are a girl’s best friend”, while Fund managers are mostly men?
The attachment for the elite
“Better a diamond with a flaw than a pebble without” – Confucius said. Indeed, every diamond has its own unique features – shade of color, microscopic inclusions, and so on.
In jewellery diamonds, these features cannot be seen with the naked eye, and the best of the stones stand the test of the microscope. But it is the fact that every diamond is unique, and determined the place of precious stones on a woman’s fingers and ears, but not in investment portfolios.
Diamonds are not easily interchangeable, they are not easy to evaluate and to sell. Large specimens can cost millions of dollars to live according to the laws of exclusive art objects and sold at auction Christie’s and Sotheby’s.
Traditions also play an important role. Gold has been synonymous with money for centuries – sovereigns preferred to collect taxes in gold coins, and those who paid taxes, had to adapt. Central banks continue to buy gold to the national reserves, and to this day, which automatically makes him an attractive asset for private investors. Diamonds, by contrast, until recently remained the prerogative of royalty, inaccessible to wide layers of the population.
Finally, diamonds are much more rare than gold. 95% of natural diamonds (the raw material for the production of diamonds) is produced by only four companies. Two-thirds of the production comes from ALROSA and De Beers, the value of which for the diamond market is equivalent to the role Boeing and Airbus for aircraft.
The annual production of diamond jewelry does not exceed $10 billion, which is negligible relative to the size of the market of financial assets, reaching $100 trillion. The diamond market is tightly balanced between the diamond miners, cutters and jewelers. When there is additional demand from the financial market, “diamonds for brides” may not be enough.
The way to market
The difficulties of circulation, traditions and narrow market limited the appeal of diamonds as an investment – until now. Information and financial technology, as well as the growing shortage of diamond production in the near future will turn the diamond into a popular tool for investment.
Transactional complexity will go first. Remember paper letters and phone calls through the operator? Modern technology has already solved transactional problems in a variety of industries, including in the diamond. Gems feel good in the Internet (more than 20% of sales in the US happen online), and also one of the first appeared in the blockchain – is enough to recall b2b platform Tracr to track the origin of diamonds.
Tradition in the financial market are rapidly changing. Assets quoted gold funds (ETFs) grew from $1 billion in 2005 to $100 billion in just five years. Diamonds are ideal for instruments such as ETFs, as investors get a portfolio of professionally and free from the hassle on the individual selection of stones.
And although diamond has no historical role of money, they have another trump card – the reputation of the main symbol of eternal love. A diamond ring means beginning new families and serves as a catalyst for the most important evolutionary tradition, ensure the reproduction of mankind. About 80% of the brides in developed countries receive a diamond ring.
China and India are just starting the movement this way. As demand growth in the giant Asian markets, the main factor that influence price and investment demand for diamonds will be a supply shortage.
The deficit is a useful condition for any asset. “Buy land, it will no longer produce,” advised mark TWAIN. World production of diamonds is suitable to exhaustion. Assessment Bain & Co, while maintaining the organic growth rate of demand for diamonds (excluding the new investment demand), by 2030 the gap between demand and supply will exceed the entire current annual production. This will launch the market mechanism for managing scarcity, prices will rise, and the size and quality of stones in jewelry will fall.
Simultaneously with the reduction in production is the penetration of new technologies in the diamond industry. The consumer no longer offer to buy a beautiful crystal with a certificate of its optical and physical qualities. Soon every diamond will carry the entire history of origin, from production to sale, including the exact date of birth after a billion years in the depths. Imagine the marketing potential of this data on the markets of Asia, obsessed with numerology.
The rising prices of increasingly scarce technological and diamonds will cause the demand for the return into circulation of stones owned by the population. Diamonds are forever, and after a simple inspection and certification may be re-offered for sale is quite simple. Advanced online platforms and smart technologies of individualization, finally, will make the process of reselling the diamond as easy as the first purchase. This will be a turning point for the market, when diamonds will be best friends not only girls, but also investors.