Outlook

Solid Asset Diamonds

Constancy and consistency - values ​​that are not just about the diamond itself, but also its price development. While some investment classes, such as gold or stocks, are characterised by high volatility, diamonds prices tend to move slowly and steadily in a long-term uptrend with no speculation driven instability, yielding around 4-5% year as an average.

It should be emphasised that buying diamonds does not serve to generate short-term profits, but rather represents the ultimate form of capital backing and protection against inflation.

From the annual global production of approximately 140 million carats of rough diamonds (of which 80% find industrial use and therefore are not polished) only around 750 flawless diamonds in the size 1.00 - 1.39 carats and the colour D (River +) are produced. 

Smaller diamonds (less than 0.5 carats) make up the bulk (about 90%) of the polished production, which are unsuitable for investment due to high volumes. Up from 0.50 carats, the global number of polished diamonds decreases and thus their value increases exponentially.

There is an increasing imbalance between supply and demand driven by three factors: Diamond owners rarely part with their stones, demand has been increasing due to population increase, specially in emerging markets and there have been global mine production declines for geological reasons. All of this leads to a significant excess to the detriment of supply.

Whether stocks or gold, most assets have seen large price fluctuations between 2007 and 2019. Only diamond prices have remained relatively constant with average annual increases of 4 - 5% (since 1960), with just three noteworthy exceptions: the financial crisis in the summer of 2008 (when there was a 12% price fall from the previous year), in 2011, when the market experienced a temporary, strong, upswing of over 20% due to increasing international prosperity and favourable financing options and finally in winter 2021/-22 when long-term zero interest policy of the central banks worldwide plus the outbreak of Ucraine war conducted to soaring inflation. Unlike the price collapses of other assets, the price decline in the diamond market in 2008 was moderate and prices fully recovered in less than two years; by comparison the stock and real estate markets had not recovered even five years after the crisis.

As many of our investors still focus on the potential for price appreciation in diamonds, rather than on aesthetic and practical aspects, we have provided excerpts from a few brief but insightful, graphically enhanced market analyses by renowned management consultants such as Bain & Co. and others.