Diamonds are no longer just engagement rings that send brides-to-be into a size-comparing frenzy. Now, investing in diamonds is also a thing. Yes, is it even surprising?
The Singapore Diamond Investment Exchange (SDIX) recently launched standardised diamonds that can be traded like gold ingots. This makes managing diamond investments much easier.
So the big question is: should you invest in diamonds, or are they about as useful as an oversized rock on some tai tai’s finger?
Here’s what you must know:
The supply of diamonds is limited
The reason diamonds work as an investment vehicle is because the supply of diamonds in the world is limited.
That means prices are driven up when there is demand, as there is no option to “create” more diamonds, at least not the type that can be traded.
And it seems that the demand for diamonds is indeed rising, thanks to China and India.
The question for investors is, are diamonds likely to perform well as an investment moving forward?
Unlike gold, the value of diamonds is highly subjective
The value of gold is easier to figure out—you just need to know the weight and the karat number, and then match it to the current price per kilo. Even your grandmother’s gold teeth can be valued easily.
Diamonds, on the other hand, are much harder to value, because every diamond is different.
So don’t think you can just pilfer your wife’s diamond earrings to trade on the market. They may be worth less than you think.
And unlike gold, when diamonds are sold they aren’t priced entirely according to weight or karat number. Many sellers get away with tacking on a random mark-up.
To avoid uncertainty, buy diamonds on the SDIX if you must.
The diamond bubble might burst
People who buy gold as an investment usually think of it as a “safe haven” investment—a way to hedge your bets when the market is tanking.
Traditionally, gold tends to retain its value when the currency or share market are tanking.
That’s because people tend to buy more gold in market downturns. After all, owning a lump of precious metal seems safer than holding on to stock in a company that might not exist tomorrow.
That’s why gold prices tend to rise during a market downturn.
So, does the same apply to diamonds?
While diamonds are similar to gold in some ways (at least from an investor’s, not a fashionista’s point of view), the sparkly gems are actually a riskier investment.
The price of gold is greatly influenced by people who buy it to save or invest.
Sure, there are some people who think wearing heavy gold chains makes them look like Sharhrukh Khan, but gold consumption has a relatively weak effect on the price of gold.
Diamonds are a different beast. Consumer tastes have a huge influence on prices, due to its reputation as the symbol of romance—a reputation that was built by nothig more than clever marketing. But because we are suckers for marketing, just about every BTO flat buying couple owns a diamond these days.
As a result, diamonds are now grossly overvalued—much like Singapore’s property market.
Today, diamonds are in style. But one day, should the tides change, the demand for diamonds would fall dramatically, leaving investors in a lurch.
If you’re speculating on diamonds in the short-term, you might be able to make a quick buck here and there thanks to market fluctuations.
But as a long-term investment, beware, as diamonds may not be forever.
Would you invest in diamonds? Share your views in the comments!