Diamond Investment Fever…Starting Up Again?

Last week, we wrote about IndexIQ Advisors, a company that plans to introduce the first diamond exchange-traded fund in the United States. But that is not the only group trying to get people to invest in diamonds.

Feast your eyes on Pinnacle Diamonds, which is running this ad on CNN and Fox, touting diamonds as “the new gold”: 

A sister company to a gold investment business, Pinnacle advertises heavily with conservative talk radio hosts like Michael Medved and Dennis Prager, whose pictures adorn its website. (Here’s a sample radio commercial.) But this isn’t a fund; it seems to actually sell people diamonds…which it then pledges to buy back:

We don’t keep your diamonds in an off-site vault and hand you a slip of paper—you are personally provided with the exact diamonds you’ve purchased, along with the certificate for each, and you completely own your diamonds in full…

We guarantee that every diamond you purchase can be sold back to us, at any time, at the highest rated bid price of the day—with no fees or commissions.

Gold’s incredible run over the last few years popularized the notion of owning metals as an investment—particularly among people looking for a “hard asset” because they are convinced the goverment is going broke. This looks like an attempt to interest the same audience in diamonds.

But are diamonds well-suited for investors? Diamond investment funds were a much-talked-about topic before the recession. And now the clouds have parted, we are starting to see them again.

Yet, diamonds can be a tricky business. You really have to know what you are doing. (The track record of the one diamond fund that did make it to market, Diamond Circle Capital, has been underwhelming.) Many in the industry remain skittish after the big investment boom-turned-bust that nearly wiped out the market in the 1970s and ’80s. One veteran trade member remembers what it was like back when the whole world seemed to get diamond investment fever:

I had a psychiatrist in Tennessee who bought diamonds. I sold diamonds to a Viennese guy who sold pools. I had a folk singer buying diamonds. It was crazy.

We are far from that point, of course. But it looks like people are again trying to get there.

JCK News Director