diamonds as safe haven

[bgray]

if one wanted to buy some stones as a safe haven cash alternative is there a good rule of thumb for what to look for? i was thinking 1.5 carats E to G vs2 Ideal cut. anyone have any input?

 

[kenny]

When you or I buy diamonds we have to pay retail.
When we well them we only get wholesale.
That makes diamonds a horrible investment.

That said you may lose less money "investing" in the more rare diamonds, like large D IFs or the more rare naturally colored diamonds.
Nobody can really say without a crystal ball, since past performance is no guarantee of future performance.
But one thing's for sure, when it comes to losing as little money as possible, only consider natural mined non-enhanced diamonds with GIA or AGS grading reports.

Personally I have some fancy colored diamonds that I think will still be worth something if the stock market crashes.
I did not buy them as an investment, as in expecting to make money off them appreciating, precisely because of the large spread between retail and wholesale prices.
I see them as just a small part of a widely diversified long term portfolio.

 

[minmin001]

not sure what safe haven means.. you mean to buy it as investment and if need you sell it?
Diamond is not a good investment unless you buy a really big one which will require least few hundred thousands. you probably better off buy gold instead

 

[denverappraiser]

When we well sell them we only get wholesale.
.

'Wholesale' is a tricky word in this industry and it gets badly abused. Most sellers don't even get that. Dealers have a regualr supply network where they get most of their goods. They have relationships with the suppliers, they get return priviliges if things don't go well, they get time to pay etc. Buying from a consumer gets none of this. The typical terms are cash, now, no recourse. The exception is consignment which comes with it's own headaches. The result is that most private sellers are selling at BELOW wholesale.

With most people who buy and sell a diamond, the hit is at least 50% and often it's more than that. This is slowly over taken by the appreciation of the marketplace. Eventually those two lines cross but it's a long uphill climb and fashion trends can hammer you. Marquise cuts in the typical sorts of grades and sizes are STILL getting offers for below what they cost at retail in the 70's for example. It's not that they weren't beautiful when they were new, or that they aren't just as beautiful now, but fashion trends have changed and it's difficult for dealers to move them on to a fiinal consumer and this is reflected in the prices they're willing to pay. Where will fashion take us in the next 40 years? Who knows but one thing is certain, it WILL be different.

 

[diamondseeker2006]

All that, and in addition, diamond prices are EXTREMELY high right now! Not the time to buy!

 

[bgray]

thanks--i didnt mean as an investment but as a non cash place to put some money and tuck them away.

 

[denverappraiser]

thanks--i didnt mean as an investment but as a non cash place to put some money and tuck them away.

What's the difference between that and an investment?

 

[diagem]

All that, and in addition, diamond prices are EXTREMELY high right now! Not the time to buy!

Times are changing (pretty fast too) and I dont think anyone knows exactly what the (near) future will bring.
One thing is for certain, Diamonds will not be valued as they were in the past. I am not talking "higher or lower" just differently.

I am in the trade so I will try to minimize my suggestions but I wouldnt reject the the "safe haven" idea out of future Diamond potential values.
Present valuing systems seem to be off-course already (eg Rap lists et al).

 

[bgray]

thanks--i didnt mean as an investment but as a non cash place to put some money and tuck them away.

What's the difference between that and an investment?

because i am not assuming an increase in value. banks are not 100% safe. diamonds are portable.

 

[denverappraiser]

To be sure, banks are not 100% safe and yes, diamonds are among the most portable forms of wealth available. That said, what I mean by 'investment' is a vehicle for storing wealth. That is to say, a way to spend your money where you can get it back again at some future date and spend it on something else. Straight consumption items, like food and clothing, clearly don't fit this and some, like stocks and bonds have no other purpose. There are lots of things in between, like housing and automobiles, where they have some level of investment potential but the primary reason for buying them is the utility of the purchase. I think diamonds fall in this mid category. They're better than cars but worse than houses. What makes one better than another as an investment is going to have to do with your ability to sell at the back end. Some of this has to do with the details of the stone itself, but far bigger variables are your own selling skills and the market conditions when it comes time to cash out.

 

[denverappraiser]

All that, and in addition, diamond prices are EXTREMELY high right now! Not the time to buy!

Times are changing (pretty fast too) and I dont think anyone knows exactly what the (near) future will bring.
One thing is for certain, Diamonds will not be valued as they were in the past. I am not talking "higher or lower" just differently.

I am in the trade so I will try to minimize my suggestions but I wouldnt reject the the "safe haven" idea out of future Diamond potential values.
Present valuing systems seem to be off-course already (eg Rap lists et al).

Yoram,

Interesting post. I agree that the classic way of pricing diamonds using things like the Rap list are clearly obsolete and have been for quite some time. It’s getting worse as non-Rap recognized attributes like hearts and arrows symmetry, branding, specialty cuts and the like become more important. I still think the problem of diamonds as an investment lie in the non-gemological properties of the deal and I don’t see this as changing any time soon. Customers prefer to buy from established and recognized dealers for a variety of reasons, some good and some bad. Customers like to buy ‘new’, also for a variety of reasons. Private sellers are usually in a hurry and are unprepared to offer selling terms like memo or to accept returns. The market may get marginally more efficient in a few areas and some of these people may be willing work for smaller margins but I don’t see any of these fundamental issues changing. Do you?

 

[diagem]

All that, and in addition, diamond prices are EXTREMELY high right now! Not the time to buy!

Times are changing (pretty fast too) and I dont think anyone knows exactly what the (near) future will bring.
One thing is for certain, Diamonds will not be valued as they were in the past. I am not talking "higher or lower" just differently.

I am in the trade so I will try to minimize my suggestions but I wouldnt reject the the "safe haven" idea out of future Diamond potential values.
Present valuing systems seem to be off-course already (eg Rap lists et al).

Yoram,

Interesting post. I agree that the classic way of pricing diamonds using things like the Rap list are clearly obsolete and have been for quite some time. It’s getting worse as non-Rap recognized attributes like hearts and arrows symmetry, branding, specialty cuts and the like become more important. I still think the problem of diamonds as an investment lie in the non-gemological properties of the deal and I don’t see this as changing any time soon. Customers prefer to buy from established and recognized dealers for a variety of reasons, some good and some bad. Customers like to buy ‘new’, also for a variety of reasons. Private sellers are usually in a hurry and are unprepared to offer selling terms like memo or to accept returns. The market may get marginally more efficient in a few areas and some of these people may be willing work for smaller margins but I don’t see any of these fundamental issues changing. Do you?

Neil, is Art an investment? Store of value? Opinions?

 

[denverappraiser]

Neil, is Art an investment? Store of value? Opinions?

For some people, most of whom are dealers, yes. For the vast majority of consumers, no. The same holds for most antiques, collectibles like comic books, baseball cards, stamps, vintage automobiles and similar assets. In each of these cases, the tricky part is in the selling although a lot of these things have storage and care issues as well. Buying valuable things is easy. SELLING valuable things is hard.

 

[diagem]

Neil, is Art an investment? Store of value? Opinions?

For some people, most of whom are dealers, yes. For the vast majority of consumers, no. The same holds for most antiques, collectibles like comic books, baseball cards, vintage automobiles and similar assets. In each of these cases, the tricky part is in the selling although a lot of these things have storage and care issues as well. Buying valuable things is easy. SELLING valuable things is hard.

Agreed...
I still have been attempting to follow a culture which is pretty new to us (in the West) like India (for example but not alone)..., the Indian culture shows that Jewelry/Gem buying can definitely be translated into Investment/Store of Value "tools". True, in the past it was more dependent in Gold but it seems to slide off pretty smoothly into Gems and Diamonds. Yes, its new and still has to pass the test of time but I definitely notice Diamonds being looked at in a different light. I guess the future will tell.

 

[kenny]

So we might argue that diamonds ARE a "safe haven" for 30% maybe 40% of the money you pay for them.
In a crash stocks can go to zero.
Of course even that 30% is not guaranteed "safe" since huge new mines may be discovered, or DeBeers or the Oppenhiemers can go bonkers and affect the supply.

Diamonds and gold have both skyrocketed in price in recent years.
How their prices would hold up after a crash is anyone's guess.

 

[bgray]

thanks everyone. i have been considering pulling some cash as it isnt earning much and was contemplating gold but its heavy and more cumbersome. i was thinking diamonds as smaller, easily portable and should things (hopefully!!!) just stagnate for several years they wont lose as much value as cash in an inflationary economy!

 

[denverappraiser]

So we might argue that diamonds ARE a "safe haven" for 30% maybe 40% of the money you pay for them.
In a crash stocks can go to zero.
Of course even that 30% is not guaranteed "safe" since huge new mines may be discovered, or DeBeers or the Oppenhiemers can go bonkers and affect the supply.

Diamonds and gold have both skyrocketed in price in recent years.
How their prices would hold up after a crash is anyone's guess.

People often ask me as an appraiser to predict the future price of gold, diamonds, vintage jewelry and similar things that are within my area of expertise. Unfortunately, this is a job for a psychic, not an appraiser. If I (or any other appraiser) could reliably predict tomorrows gold price with, say, a 51% accuracy, we would be fabulously wealthy indeed.

Not all diamonds have skyrocketed. Resale value on melee, for example, continues to rest at zero. Resale prices on ommercial I1's and 2's below a carat in unpopular shapes have actually dropped.

 

[diagem]

So we might argue that diamonds ARE a "safe haven" for 30% maybe 40% of the money you pay for them.
In a crash stocks can go to zero.
Of course even that 30% is not guaranteed "safe" since huge new mines may be discovered, or DeBeers or the Oppenhiemers can go bonkers and affect the supply.

Diamonds and gold have both skyrocketed in price in recent years.
How their prices would hold up after a crash is anyone's guess.

Kenny..., sometimes one needs to look to the past to be able to better recognize the future. (not personally).
History shows Diamonds were always considered a safe store of value.
They might be worthless sometimes in the future? They could potentially but I cant see it happen.

The BIG question IMO is "which" types of Gems/Jewelry could act better as a safe-haven but like most other financial tools, you are better off if you educate yourself prior to laying out the $$$.
Internet allows individuals to better understand the tools available..., you are a living example of it.

 

[kenny]

So I think there is pretty good consensus that the "least-unsafe haven" is the most expensive GIA or AGS-graded single stone that you can afford, as large as possible with the highest clarity and color.

In colored diamonds, buy only FCDs of natural material and color origin per GIA, in the most rare color, and in largest size you can afford.
Clarity is much less important with FCDs or the rarest colors than it is in colorless diamonds.
For instance, Leibish just listed the first of the 6 lots they just won from the 2011 Argyle Tender auction.
It is Fancy Vivid Pink, 0.66 ct., listed at $108,000 even though GIA graded the clarity I1.
http://www.fancydiamonds.net/view_diamonds/5632.htm

In terms of value-retention, instead of getting a dozen FCDs, I should have bought only one of the same value as the dozen.
Picking out a purdy rainbow of colors will mean nothing to a buyer some day.
So I'm not such a good example really.

 

[Rockdiamond]

For many years I would always argue Neil's point- consumers need to buy at retail, and sell well below wholesale, if they need to sell quickly. This aspect makes diamonds unattractive as an investment.
Then in the fall of 2008, I realized something.
If, instead of investing $100,000 in....say GM stock, the same 2003 dollars were invested in the right 5ct Fancy Intense Yellow, in the fall of 2008, the diamond would have been worth a LOT more, even if you had to sell it for $60k- and it would have been far more enjoyable owning it for that period.
For a profitable turn around, diamonds don't make sense. But if you don't plan on using the money for a long period of time, and you love diamonds, they can be a good way to "park" some money- albeit you may have to pay for the parking.



We can also look at other similar situations- for example 1980- when prices of certain stones went through the roof.
A D/IF 1.00ct was $60k- and selling like hotcakes in Tokyo.
Then, pop.
Back down to $15k (iirc)

Coinciding with the financial problems in the fall of 2008, diamonds also took a slight loss in price.
I felt the diamond market in 2007 and early 2008 was unrealistically hot- and I expected prices to moderate.

Today's situation is much different.
I think some of the most exaggerated increases we've seen over the past 6 months may see a slight correction- but overall, the forces driving the pricing nowadays seems logical.

 

[diagem]

In terms of value-retention, instead of getting a dozen FCDs, I should have bought only one of the same value as the dozen.
Picking out a purdy rainbow of colors will mean nothing to a buyer some day.
So I'm not such a good example really.

Not true..., remember the prices are disproportional in regards to weights & sizes of the specific Gems you picked.
I don't believe you could have found a significantly larger stone for the total value of the rarities you currently own.

 

[diamondseeker2006]

I am about to sell a high quality diamond at a nice profit more than likely. Would those of you in the diamond business think it is best to wait to buy another stone or wait? I realize you don't have a crystal ball, but would you personally wait or buy asap?

 

[kenny]

I am about to sell a high quality diamond at a nice profit more than likely. Would those of you in the diamond business think it is best to wait to buy another stone or wait? I realize you don't have a crystal ball, but would you personally wait or buy asap?

I'd hang on to what you have.

Take it to the extreme.
For a moment ignore the profit you could make if you sell that stone today.
It is a given that you and I must pay today's retail but get much less in today's prices when we sell (regardless of what we originally paid).
IOW, we give up some money with every transaction.

10 transactions, one per year for 10 years, gives up more money than one transaction every 10 years.

Look at it from another angle.
Let's say you can sell your rock for $10,000 today.
The new rock you buy today for $10,000 cannot be sold by you today for $10,000, rather much much less.

For you and I, selling and buying makes money disappear.
I think it is best to buy and hold as long as you can, assuming prices do not go down which, while not likely, is not impossible.

 

[kenny]

In terms of value-retention, instead of getting a dozen FCDs, I should have bought only one of the same value as the dozen.
Picking out a purdy rainbow of colors will mean nothing to a buyer some day.
So I'm not such a good example really.

Not true..., remember the prices are disproportional in regards to weights & sizes of the specific Gems you picked.
I don't believe you could have found a significantly larger stone for the total value of the rarities you currently own.

Yes, but while I paid much more for my 10-pt red diamond than I did for my honking 2.26 ct F VVS2 asscher, I believe a larger Red diamond will appreciate at a greater percentage than a 10-pt one.

 

[diamondseeker2006]

But in this case, the diamond I am selling will probably yield me 33%+ more than I paid. What I would buy would cost maybe 2/3 of what I get from the sale. So I would retain my profit, but I would likely lose if I ever sold the new stone (but I don't plan on ever doing so).

 

[kenny]

But in this case, the diamond I am selling will probably yield me 33%+ more than I paid. What I would buy would cost maybe 2/3 of what I get from the sale. So I would retain my profit, but I would likely lose if I ever sold the new stone (but I don't plan on ever doing so).

Well, now you are introducing a new factor.
You are not minding that you are letting some money vanish by saying you don't care because you never sell the new one.

Nothing is right or wrong here.
You can do whatever you want and view it however you want.

 

[diamondseeker2006]

But basically I come out ahead because I am making a profit at the end of the deal. I definitely profit because I make money selling the current stone. I am buying a smaller stone as a replacement. My question is whether it is better to buy the smaller stone now which would be anticipating prices to stay the same or higher or whether prices may correct making it wiser to wait.

And to the original post, I think gold is far easier to buy and sell without the retail price factor interfering.

 

[denverappraiser]

Sure, the right diamond under the right circumstances for the right person would have done better than GM stock. That’s a pretty low bar and it is not evidence that this will be the case in the future. Then again, the right stock would have done better than that diamond over the same period. Hindsight is a lot easier than foresight. Overall, most stockholders in public companies, including GM, have been pretty happy with their returns over the last 100 years. This has NOT been the case with consumers of diamonds.

Diamonds are going up for some good reasons that I agree are likely to continue, including:

The diamond engagement tradition is expanding quickly around the world. More brides in more places are wanting diamonds than ever before.
The population of the world is growing.
Wages in producing countries like India are on the rise.
No significant new diamond deposits have been discovered in years.

Does all of that make them a good financial investment? I think not, although the mining companies, cutters and dealers may be good places to stick a few bucks. I agree with Kenny above that the best percentage return is on the most expensive items, the issue with these is on the selling end as well. Most consumers don’t have the opportunity to reach an eager Chinese bride or a Chinese collector who is equally eager to buy their stone and the path is difficult for both parties.

 

[kenny]

But basically I come out ahead because I am making a profit at the end of the deal. I definitely profit because I make money selling the current stone. I am buying a smaller stone as a replacement. My question is whether it is better to buy the smaller stone now which would be anticipating prices to stay the same or higher or whether prices may correct making it wiser to wait.

And to the original post, I think gold is far easier to buy and sell without the retail price factor interfering.

Sure, but if you sell the old one for $10,000 then buy the new one for $10,000 what you are getting is worth less than what you just sold.
Such is the spread between retail and what can we get when we sell.
If you held onto the old stone this "spread money" would not vanish. Perhaps THAT would be "wiser".

Again, you can ignore this and think of it however you want to think of it, focusing only on the profit you feel you made, but them's the facts ma'am.

 

[diamondseeker2006]

Kenny, but that is not exactly the situation. I'd be selling for around $22k-25k and buying a new stone for around $15k plus $2000 for setting. So I end up with $5-7k in my pocket.

Looks like Neil thinks prices will continue to rise so maybe it is best to replace immediately.