Pink Diamonds as an Asset Class

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By Shane Meredith

“A coloured diamond is a touchstone of the universe, a little something God created that man can’t always find…they are the last frontier of collectable.” – R. Winston 1986

There is a new asset class; that is developing a cult following among some investors – Argyle pink diamonds.

Some Australians are buying the precious stones via superannuation funds; because they think the value is about to explode, ABC reported. The diamonds are considered rare because there’s only one main source; Rio Tinto’s Argyle mine in Western Australia, and that’s slated to close by 2020.

The “pinks” as they are known are hard to get there are only 34 luxury jewellers or ateliers authorised to sell them. To add to the rarity only about 1% of the diamonds dug at Argyle are pinks. To visualise the scarcity; just imagine that for every four Olympic-sized swimming pools’ worth of earth mined at Argyle, only a small bucket of diamonds is uncovered and within that bucket – only a teaspoon of the stones are pinks. This rarity has raised prices to incredible levels.

Over the past 15 years the value of Argyle pink diamonds sold at tender have seen incredible growth, Sally Ryder of Ryder Diamonds in Hong Kong reported. Fancy intense on to two carat pink diamonds increased in value by 3165% between 1 October, 1995, and 12 November, 2014, data provided by Ryder Diamonds indicates. In contrast gold increased in value by 204%; and platinum by 186%, during the same period.

There is other data that supports Ryder’s claims. The value of pink diamonds increased by 180%; between 2009 and 2016, according to an analysis by the Fancy Colour Research Foundation in Tel Aviv.

The price is high because of scarcity and the scarcity is growing. In a few years the only place where you will be able to buy natural pinks is on the resell market.

Are Diamonds an Investors’ best Friend?

There are some other diamonds that are worth even more, a 4.08 carat pear-shaped vivid-orange diamond sold for more than $1 million a carat; or $4.08 million in 2016, Market Watch reported. The rate of appreciation on some varieties of gems is incredible; prices for blue and yellow diamonds increased by 70% to 90% between 2009 and 30 September, 2016.

It is easy to see why such gemstones have become such a popular investment. Unlike stocks in shares; or property portfolios, these diamonds can be worn and adored and appreciated like a piece of fine art. Furthermore, they’ll never deteriorate (after all the youngest natural diamond is already billions of years old); never need a fresh coat of paint, or a warehouse to store. They’re one of the cheapest assets to hold and they don’t require any maintenance.

Nor is it just super fund investors that believe in diamonds. The world’s most famous value investor; American billionaire Warren Buffett, is a huge fan of diamonds. Buffett’s Berkshire Hathaway (NYSE: BRK.B) owns several jewellers; including Helzberg Diamonds, Borsheims Fine Jewellery and Ben Bridge Jeweller.

The Luxury Market is Booming

Buffett and the super-fund investors might be on to something here. The prices of all luxury goods seem to be increasing. The S&P Global Luxury Index increased by 729.92 points between 18 May, 2012, and 11 May, 2017. That index gave its investors an annual return of 7.31%.

The return on luxury goods is increasing because there are more rich people around than ever before. There were 142,000 millionaires in Hong Kong in 2016 according to Cagemini’s World Wealth Report; which is extremely high given the population of the entire country is under eight million.

Hong Kong is just the tip of the iceberg here; there are now millions of millionaires roaming the Earth, Cagemnini’s data indicates. There were 200,000 millionaires in India, 234,000 millionaires in Australia, 2.72 million millionaires in Japan, 1.03 million millionaires in China, 358,000 millionaires in Switzerland, 4.448 million millionaires in the United States, 1.11 million millionaires in Germany and more than a half million millionaires each in both the United Kingdom and France.

The number of millionaires is also increasing; Australia’s millionaire population grew by 4% in 2016, and Japan’s by 11%. That means there are now millions of potential customers for a finite supply of pink diamonds.

Under these circumstances, pink diamonds are out of reach even to many millionaires; making them one of the most exclusive luxury products in the world. That makes them an ideal item to market to the world’s 2,043 billionaires. The stones’ value might reach new heights; because the number of billionaires in the world grew by 13% between 2016 and 2017 according to Forbes.

Pink diamonds are a colourful and legitimate investment for those who have lots of disposable cash. Despite the value growth, there are some drawbacks to coloured diamonds as an investment.  One of the limitations of investing in diamonds is their liquidity.

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