Look Who's Touting Diamonds as a Commodity
I was a little surprised to hear DTC managing director Varda Shine tout diamonds as a “hard asset,” and by implication an investment option, in this interview with Bloomberg (video.)
And apparently, that wasn’t just a one-off. In a letter to sightholders sent out today, she amplified this message:
There is an almost universal belief, with strong cultural resonances everywhere, that diamonds are solid; that they have enduring value. In fact, it is on this very passionately held belief that we are basing a comprehensive new programme of communication (advertising and PR) to consumers, particularly in North America. Over the coming weeks and months leading up to the all-important season, you will see more and more communication from us – and we have no doubt this will be amplified by you – on this theme.
We know that in tough times, consumers gravitate towards quality; that they buy fewer, but better things – things that last, which are not disposable and which hold their value.
Clearly, it’s not a coincidence that the "diamonds hold their value" theme keeps coming up. And it certainly makes sense as a marketing tactic to boost diamond sales – though I am not sure it does as an investment strategy. (We’ll save that discussion for another day.) People are looking for something solid in these uncertain times. And while this isn’t the first time that diamonds have been promoted as an investment vehicle, it is pretty surprising to hear it being done (somewhat) by De Beers itself.
Now, commodity prices haven’t exactly been soaring lately; this may have been a better tack six months ago. But still, the diamond market needs something to give it a boost. Could this be it?
Daniel Katz Sydney Australia commented:
Diamond investments are being viewed as increasingly attractive as
a result of recent trends that suggest a diminishing global
supply.
Whether this is true or not unlike the diamond boom of the late
70's up to 1980 orchestrated by De Beers to flush out stored rough
this time the price increases seem to be due natural forces of
supply and demand.
It is always in the back of my mind that polished and rough
diamonds lack some of the desirable attributes of investment
vehicles, including liquidity, homogeneity and fungibility.
Fungibility does not imply liquidity, and liquidity does not imply
fungibility. Diamonds can be bought and sold (the trade is liquid),
but individual diamonds are not interchangeable (diamonds are not
fungible). Zimbabwean dollar bank notes are interchangeable in
London (they are fungible there), but they are not easily traded
there (they are not liquid in London).
You either love the diamond business or you don't.
Those of us who held stock in the last three years have made
handsome capital gains. Those of of us who took advantage of the
weak US dollar only a couple of months ago are also reaping huge
benefits. One however should only "invest " in diamonds if they can
afford to. Any investor knows to minimise any potential losses
common sense says retain a sensible balance.
Diamonds are not especially liquid. There are several factors
contributing to low liquidity of diamonds. One of the main is the
lack of terminal market. Most commodities have terminal markets,
and some form of commodities exchange, clearing house, and central
storage facilities. This does not exist for diamonds. Diamonds are
also subject to value added tax in the United Kingdom, Europe,
Goods & Services Tax in Australia and sales tax in most
developed countries, therefore reducing their effectiveness as an
investment medium.
R. TOP commented:
Hedda the best point you make is "In the past”, we are in a
new paradigm and the reality on the ground has changed the standard
operating procedures of what to do with your money. Art purchased
by the well informed buyer has been an investment with large
upside, which is holding strong in this market. Should one invest
in mutual funds now it may not be a good bet. While Diamonds are a
gift of love they are also a great store house of value that hedges
inflation, actually comfortably outpacing inflation and increases
in value as a diminishing resource. In these times when risk is
everywhere diamonds are one of the few safe stable items of value
the owner holds and controls with out having to trust Bankers or
esoteric financial products and the companies that created them.
Steady growth (hedge against inflation), virtues making diamonds
similar to a currency and the reasons mentioned above are why value
in diamonds is being looked at as a means to move forward in this
economic environment. Market down 700 points today.
Hedda Schupak commented:
In the past, when asked by outsiders about "investing" in diamonds,
I always said to invest in a beautiful stone or piece of diamond
jewelry like you would in a beautiful piece of art or fine
furniture: because you love it and it will bring you pleasure to
look at it and use it. A diamond certainly shouldn't go down in
value, so you can at least recoup your cost and probably do
better--but if you're looking at it as a means to send the kids to
college, skip it and invest in a good mutual fund instead. Despite
what the market has done of late, I still think for the majority of
consumers, mutual funds are better than diamonds for investing. And
they're much easier to liquidate.
