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High ROI of Diamonds

Diamond InvestmentVarious marketing campaigns that aim to attract customers have succeeded in equating diamonds with eternity and luxury. A woman wearing diamond rings on her fingers tend to feel more superior to others. Carrying such a heavy price tag, diamonds do have more to discover than just a glimse of grandeur.

Diamonds are precious because they are scarce. It takes some thousands of years in forming a natural diamond while existing diamond mines are limited. It’s also extremely hard to find new ones. This explains why the value of diamonds is constantly rising.

Demand-supply imbalance that we see in diamond market is another reason for price growth. Diamond supply is expected to grow annually by 2% for the coming years while demand has a much higher rate at roughly 6.5%. According to figures from De Beers - the world famous diamond jeweler, the total sales volume of diamonds in 2014 was about USD 81 billion, among which 16% comes from China (including Hong Kong and Macau), making it the third largest diamond market in the world.

Diamond Investment

From time to time, diamond collectables set new record at auction. Blue and pink diamonds are most commonly seen at auction houses. Earlier at Sotheby's Geneva, a Hong Kong billionaire purchased a 12.03-carat blue diamond for his 7-year-old daughter at a record-breaking HKD 3.7 hundred million.

“You buy diamonds because you have a passion for them”, said Hong Kong-based Graeme Thompson, London-headquartered auction house Bonhams’ director of jewellery for Asia in an interview with GoHome Luxury Living Magazine this year. “Diamonds are also very liquid. They are all traded in US dollars. They have historically been used as currency. They are the smallest, most transportable form of wealth.” He added.

However, Thompson cautions that there is a lot of knowledge that goes into assessing a diamond’s value. Along with the traditional four C’s—namely, carat weight, cut, colour and clarity—it is about how the four aspects work with each other.

He mentioned that the world’s economies and politics all affect demand. “If the demand is weak, a supplier won’t flood the market. Diamond manufacturers buy with cash from mines and sell on credit to wholesalers or retailers. They hold the diamonds for nine months on average.”

As for novice investors, he suggested diversification. “It is important to buy different weights and cuts to build up a good collection.”

According to Rapaport Diamond Index, returns from 5-carat, 3-carat and 1-carat diamond types are 150%, 100% and 50% respectively over the past decade.