How to Invest in Diamonds

Diamonds are the hardest substance that occurs naturally on earth, and some investors also consider them to be an exciting investment vehicle. This moneyland.ch guide provides basic information about investing in diamonds.

Why should I consider investing in diamonds?

In the eyes of some investors, diamonds have the potential to deliver substantial returns. Diamond prices have gone up steadily, and skyrocketed during the coronavirus pandemic. According to the Zimnisky Global Rough Diamond Price Index, the prices paid for uncut diamonds climbed by more than 50 percent between December 2007 and October 2023. But between October 2022 and October 2023, diamond prices fell by nearly 17 percent, leading many investors to speculate about a future recovery.

The advantages of diamonds, from an investment perspective, are their incorruptibility, and their small size which makes them easy to transport and store. Even diamonds weighing less than one gram now command prices of several hundred thousand francs. To would need much larger amounts of gold, silver, platinum, or palladium, to hold the same amount of value.

What are the risks of investing in diamonds?

Investing in diamonds requires a founded knowledge of the diamond industry. It can be difficult for non-experts to differentiate between particularly valuable diamonds and more ordinary gemstones or even fakes. The various factors that determine the value of diamonds are also more complex than those applicable to precious metals like gold and silver. Consulting a competent diamond expert is recommended.

While diamonds can potentially gain in value, there is also a high risk of losing money. The material value of a diamond generally rules out the possibility of a total loss, but the possibility of having to sell at a big loss cannot be ruled out. Only a relatively small number of exceptionally costly diamonds are suitable for investments. The large amounts of capital required, along with the high risk of loss, make direct investments in physical diamonds unattractive for small investors.

You should only ever consider diamond investments as a way to extend and diversify your investment portfolio, but never as the main component.

Which diamonds should I invest in?

You should only invest in diamonds that have not been worked into jewelry. Diamonds that have already been worked into jewelry are often worth less, and their value as an investment solution is limited.

The value of a diamond is determined by a set of criteria known as the four Cs:

• Color: The rule of thumb is that the less color a diamond has, the more valuable it is. Only diamonds with a D color rating are interesting for investors.
• Cut: Only diamonds whose cut is rated as excellent are worth investing in. The perfect cut maximizes a diamond’s brilliance and sparkle.
• Clarity: The highest-quality diamonds are completely transparent.
• Carats: A carat is a unit of weight equal to 0.2 grams. The more a diamond weighs, the rarer it is, and the higher its resulting price and investment value is. Diamonds weighing more than one carat are particularly valuable due to their scarcity.

There is an additional criterion, a fifth C, which is also of crucial importance to investors. The diamond’s certificate shows that its genuineness and quality have been certified by an internationally recognized authority. Certificates are exceptionally important for diamonds because the diamond market is less standardized than the markets for precious metals like gold and silver, which makes it difficult to know whether a diamond is investment-grade. Certificates from these three organizations are widely recognized:  

• Gemological Institute of America (GIA)
• Hooge Raad voor Diamant (HRD)
• International Gemological Institute (IGI)

Where can I buy diamonds?

Diamonds are sold by jewelers, specialized dealers, and on online platforms. You should be aware, though, that in addition to value-added tax (VAT), you also pay high markups added by these merchants.

A dealer’s reputation is the most important consideration when choosing a supplier. Making sure you receive a certificate issued by one of the organizations listed above will help you avoid buying counterfeits. You should also make sure that the diamond has undergone the Kimberly Process, which certifies that the diamond is not a conflict diamond. The term conflict diamond refers to rough diamonds that are used to finance wars against governments.

How should I store my diamonds?

Diamonds should be stored in a place where they are safe from theft and damage. If you store your diamonds at home, they should be kept in a safe. Make sure to account for the cost of installing a suitable safe. Alternatively, you can also store diamonds in a bank safe deposit box, a safe deposit box from a secure storage company, or in a bonded warehouse, in which case you should account for the ongoing costs. Diamonds held in bonded warehouses are not subject to VAT, but the fees are often higher for this type of storage.

How can I insure my diamonds?

In principle, diamonds are covered by Swiss household insurance. However, gemstones that are not embedded in jewelry are counted as a cash equivalent, and household insurance coverage for cash equivalents is very low. For that reason, you should consider getting specialized valuables insurance for your gemstones, particularly if you have a particularly valuable diamond collection. Make sure to account for the ongoing cost of insurance, as it will detract from your potential returns.

Good to know: Diamonds stored in bonded warehouses are normally insured by default. Some secure storage companies let you insure the contents of your safe deposit box.

Are there other ways to invest in diamonds?

It is possible to invest in the diamond industry without actually buying physical diamonds. These investment vehicles can be used to participate in the diamond industry:

• Stocks: You can buy shares of companies that are involved in mining or marketing diamonds. For example, the company Anglo American holds an 85-percent stake in De Beers, which is the world’s leading diamond producer. Investing in individual stocks has the potential to yield high returns, but there is also a high risk of loss. If the company goes bankrupt, your shares could become worthless.
• ETFs: You can also invest in exchange-traded funds (ETFs) which, in turn, invest in companies in the diamond industry. However, these ETFs invest very broadly across a wide range of commodities or luxury goods producers. One example is the UBS ETF MSCI UK IMI Socially Responsible UCITS HCHF (ISIN: IE00BZ0RTB90). The advantage of ETFs is that they make it possible to invest in a diversified portfolio even with relatively little capital. But although the risk is lower than if you invest in individual stocks, the chance of making a loss cannot be ruled out.
• Mutual funds: There are actively managed mutual funds that hold stocks of diamond companies. Actively managed mutual funds normally have higher fees than passively managed funds like ETFs. Additionally, the criteria on which they base investments and valuation of their assets are not always transparent.

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