Investing in diamonds has been very popular lately, and it's no wonder - their price usually rises by 5-10 percent every year. In 2019, however, it was different and the price of investment diamonds developed as follows: Wholesale prices of polished diamonds fell by 3 to 15 percent, depending on size and color. Gross diamond prices fell by an average of 16 percent. (Source investing news). However, diamonds are a long-term Diamond investment instrument and therefore there is no need to panic if they fail at some point.
Investment diamonds are a very, much alternative form of regular appreciation of money , and many beginning investors do not see some of their biggest pitfalls. Investing in diamonds is in many ways similar to investing in gold and other commodities. This investment segment has strict rules and laws that you must know before you start investing.
So what are the problems, and why doesn't buying them pay off?
… Is a gemstone that is made of the most basic element in the world - carbon. The peculiarity here is that its atoms are arranged in a cubic lattice, as the hardest mineral on the planet, in addition to jewelry, it is also used in industry.
How is their price determined?
The price of Diamond investment is determined mainly by four criteria - they are referred to as 4C.
Carat - determines the weight of the diamond . Today, the carat is fixed at 1ct = 200mg, so a three-carat diamond weighs 0.6 grams.
Color - the whiter it is, the more expensive and valuable it is . There are 12 shades and measured on a scale B - Z, where B indicates the whitest color.
Cut - determines how perfect the diamond cut is . An absolutely perfectly cut diamond is called an 'ideal cut'. Otherwise, the scale excellent - very good - good - fair - poor is used.
Clarity - means purity . Because there may be cracks or foreign matter in the stone, seven categories of purity of this gemstone are identified.
Papaport Diamond Report
This price list began to be used in 1978 and is still used by Diamond investment traders to determine their wholesale prices. It is according to these tables that the sale of investment diamonds on the stock exchange is also governed. Alternatively, according to them, their purchase price is determined elsewhere - but there are several very serious problems, because of which it is not even worthwhile to buy an ordinary investor.
Problem number one: where is the stone from?
Blood diamonds: due to their size, diamonds are smuggled well from war zones. But it is from their subsequent sale that the counter parties finance another purchase of weapons - the money from their sale sheds blood. This is where their name comes from, and the question of ethical origin is just one of the possible problems.
A correct and safe investment Diamond investment has a documented certificate from a gemological laboratory. So it is important where the investor buys the gem. A novice investor does not have a chance to distinguish a real diamond from well-cut glass. Ideally, sales take place through diamond exchanges. Because in this way it is possible to count on the buyer and seller getting what they both came for and the whole sale will take place safely.
Problem number two: high margins
The second major problem with investing in diamonds is that their price is misjudged. It is quite common for an investor to buy an investment diamond at a price of one million for one million and three hundred thousand.
And buying within the European Union makes the situation even worse, because their purchase is subject to VAT. The buyer must add an additional 21 percent to the price of the investment diamond. And in many countries where it is sold, a sales tax must be added.
Here, the situation is circumvented as follows: if the investor does not need to have an investment diamond with him, he will be left in the safety vault directly on the diamond exchange immediately after the purchase. It does not get to Europe physically and it is not necessary to pay VAT. In addition, there are no worries about transportation.
Problem number three: they sell poorly
Shares go on sale in minutes or hours; Investment diamonds, on the other hand, sometimes do not have to be divested by an Diamond investment for several years. That is, if he wants at least a fair price for them. If an investor completely incomprehensibly invested in a diamond and immediately sold it, he would lose half of his money. They will pay about an extra 400,000 for a diamond worth one million due to taxes, traders' margins and payments to experts, the stock exchange and security agencies for transportation.
And even if the investor immediately finds a buyer, he will sell it for a maximum of 70 percent of its value on the stock exchange - from the price of one million, it will sell for 700,000. By buying and selling immediately, such an investor would lose half of his money on diamonds.
Another problem: around the world, the price of investment diamonds is determined in US dollars. For buyers, therefore, there is still the risk of exchange rates - buying at the wrong time can ruin an Diamond investment only by making a currency very successful and the seller loses money only to convert one currency to another.