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Diamonds store money ? a Myth or fact

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Mongol

Rough_Rock
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Dec 24, 2002
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Hey folks

Okay I may be not be the first guy to ask this but can Diamonds store money and appreciate in time.

Take this scenario: A couple is getting engaged. The guy buys the love of his love a quality Diamond ring (1.0ct F VS1 with a RBC GIA 1A cut). After 5 years the couple experiences difficulties and decide to part company. The owner of the Diamond wants to sell it...Can a 1.0ct F VS1 RBC GIA 1A cut ever be resold? if so could could the owner at leat make a small profit. In my opnion it would be bad enough that the couple seperated but to lose on the Diamond that would be bad as well.

Scenario2: Okay person X wants to buy the same quality diamond as above but isnt getting engaged. He/she simply wants to buy a quality diamond as insurance against lifes unexpected events. Is person X wise in obtaining a Diamond as a hedge against inflation.

The reason I ask this question a Quality Diamond costs much money. Money is to be earned and it would be fiscally irresponsible to 'jump in' and buy a diamond without giving much consideration.

mongol
 

Richard Sherwood

Ideal_Rock
Joined
Sep 25, 2002
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4,924
Mongol, there's a lot of controversy about this. Many will tell you that diamonds are a lousy investment, or no investment at all.

Personally, I consider diamonds (and fine precious colored stones) the best of "luxury item" investments, and if purchased and sold properly even a decent "tangible asset" investment.

Consider this. Since 1948, the wholesale value of diamonds has appreciated at an AVERAGE of 6.25% annually. That is a good solid track record.

In the past however, people have paid high retail markups, sometimes as much as a 100%. Then, when they would try and sell the diamond, they often made the mistake of selling the diamond back to a jeweler (instead of re-selling to the private market). The jeweler's incentive to buy from the public is if he can purchase it for less than what he pays normally. He can buy diamonds at wholesale all day long from his suppliers, usually with favorable credit terms, guarantees, etc.

So a jeweler will usually purchase a diamond for CASH OUTRIGHT at 50% to 65% of wholesale.

Consider a consumer who (in the past) bought a diamond at a 100% markup, let's say for $4,000 ($2,000 wholesale). Then, the engagement breaks off, they need money fast for some reason, and take it to a jeweler or estate dealer for a "quick cash" price. The jeweler offers them $1000 to $1300 cash (50 to 65% of wholesale).

The consumer is then totally turned off to diamonds as an investment...

Consider this scenario for a moment though. You're a savvy buyer. Let's say you purchase a $2,000 wholesale diamond at a 20% markup, for $2,400. In one year, the wholesale value of that diamond appreciates to $2125. Two years, $2258. Three years, $2398.

So in a short three years, the wholesale value of your diamond has appreciated to the (low) retail price you paid for it originally. Not bad, eh? You can't do that with too many other luxury items. Art is the only thing that comes close, and you can't carry a painting around in your pocket, or easily liquidate it worldwide.

Now, here's the key. YOU have to take the responsibility of selling the diamond properly, instead of the "no brainer" approach of liquidating it to a jeweler or estate dealer.

After the hypothetical three year period described above, you have a choice of (1) making a profit, (2) breaking even, or (3) taking a loss. The way to make a profit is to re-sell the diamond back into the private market. Tack on a reasonable markup over the $2400 wholesale and sell it through the classifieds. The way to break even is to let a jeweler or an auction house sell it for you, on SHORT TERM CONSIGNMENT. You give it to them for the $2400 wholesale value, and let them make the profit upon resale. Many jewelers, dealers or auction houses will do this for you.

And then of course there's always option number (3), which is to liquidate it for the "quick cash" price of 50 to 65% less than wholesale (which now will be $1200 to $1560).

It's all up to you, as the seller. You can be smart about it, or naive. I know plenty of privates who have recouped their money or made a profit on their diamonds. It's all in the buying, and the selling. Buy smart, and sell smart.

Rich, GG
Sarasota Gemological Laboratory
 

Mongol

Rough_Rock
Joined
Dec 24, 2002
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26
What I have found so far 6/10 sellers tell me that Diamonds are for wearing not for Investment. The anti side claims the liquidity of Diamonds are comparable less than Gold/Platinum bullion ,real estate or stocks. They also point out that not many people would not have 7000-10000 USD in hand to purchase a quality stone outright. Another dealer told me that the competition against CZ and other Synthetic Diamonds will push the price of Colorless Diamonds down.

The pro side claims that any quality Diamond over the size of 0.5ct shall return at least 6.0-8.5% per annum. The trick here is to buy as close as possible to wholesale value. They same group tells that Diamonds give the greatest bang per buck in terms storage of money. Diamonds are also very portable and can be easily stashed away. For example a couple is getting divorced and messy civil actions takes place to determine the division of assests. Diamonds do not need to be declared and hence shall offer a temporary safe heaven in the post divorce phase.

Cheers
Mongol


:devil:
 

RockDoc

Ideal_Rock
Joined
Aug 15, 2000
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2,509
Mongol.....

In part Richard is correct. If you want a reseller to do the work, then he is entitled to what he feels is a fair profit.


The answer as to investment rests on two factors.

1) How well you bought the diamond in the first place. But to do this well, you need a thorough diamond education, lots of equipment, and examination of your eyes ( to make sure you don't have a color grading deficiency). This route although the correct one, isn't one that many want to make the investment in, both in time and money. Ask the selling dealers what credentials they have (their curiculum vitae) and you'll see most haven't even completed their GIA Graduate Gemologist requirements, which I consider to be a starting required credential.

2)How well can you do liquidating or selling the investment. While the cost of diamonds has gone up over the years to industry buyers, the amount many jewelers want to pay when buying from the public is a downright outrage.
There is an alternative, however.. that is to find a cooperative and honest jeweler that will take your stone on consignment, where you will get more than if you wanted him to lay out the cash for it.

I recently was an expert witness in a theft case. The victim who had a large 5 carat plus diamond stated to the police that her stone was worth $ 12,000.

She received the diamond in the early 30's and at the time it cost about $ 3000.00. A short time before the theft she took it in to a jewelry buyer, who offered her $ 12,000.00 for it. This is where she got the value to report to the police. From handling other theft cases as an expert the chief of detectives thought the value was low and asked me to assist in determining a proper value. Another diamond dealer had seen the stone, and I was able to get credible information on the cut, clarity and color of the stone.

Using the Florida Law upon which to base the value according to our Fair Market Value requirements for criminal court in a theft case, my report noted a range of value which "topped" out at $ 84,000.00!

The sentencing time for a theft crime in Florida is hinged upon the amount of the theft. My report made the plea bargain become rejected by the Court and the Judge added another 6 years to the accused's sentence.

I write this to point out that with some people buying used jewelry that GREED is a far more motivating issue than trying to pay a fair and proper price for the item.

What makes this even more interesting is that the person who stole the diamond sold it to a pawn shop, who paid $ 800.00 for the stone, then claimed it "powderized" while removing it from the setting. The stone was never recovered.

An investment is something you have to weigh in your own mind, based on how you will get the profit that you expect, and what it will cost in money and time to market it successfully.

If you are unsure of how this is to be accomplished, then it isn't an investment. It doesn't matter how much a diamond appreciates, if your can't realize the appreciation. But some sellers will tell you a diamond isn't an investment to cover up how much they will want to buy it for in the secondary market.

Hope this helps you understand.... what an investment is and isn't.

Rockdoc
 

Mongol

Rough_Rock
Joined
Dec 24, 2002
Messages
26
I am aware of the rate of return per annum for quality Diamonds. The anti investment side have a fested interest in Diamonds. They probably would not like 'little fellows' trying to sell at reasonable price.

I am currently in the process of weighing the pro and cons for buying Diamonds. Although I am aware that when selling
* keep away from pawn shops
* keep away from shifty Jewellers
* Best to sell to a family member or a trusted friend.
* deal with trusted family Jeweller

Sure a Diamond will serve its asthetic and prestige purpose but as time goes by money factor will play a part. So its only wise to purchase a quality Diamond at the right price.:))
 

billyb

Rough_Rock
Joined
Dec 13, 2002
Messages
26
A little off topic but...

I read on some site that in 1980, a 1ct D Flawless would have cost 60-80k (I'm not sure exactly what number but it was something large) and that today the same diamond would only cost $15k. The drop in price had to do with the rarity of D Flawless diamonds decreasing.

Is there any truth to this particular case?
 

Mongol

Rough_Rock
Joined
Dec 24, 2002
Messages
26
Yes the price of D IF fell drastically during 1979-1980. I do not know what exactly triggered the 1980 Diamond crash.

As far I am concerned Diamonds arent that rare. There are plenty of Diamond deposits in SA and in other African countries. In my opinion Platinum is much rarer than Diamonds or Gold. The Diamond prices are artificially inflated and tightly controlled by Diamond cartels. :errrr:
 

Richard Sherwood

Ideal_Rock
Joined
Sep 25, 2002
Messages
4,924
BillyB, what you're referring to is the diamond "spike" of 1979-1980. This spike was also accompanied by the dramatic increase in gold prices to $850 per ounce and silver prices up to $30 per ounce. Remember those days? The Carter years, double digit inflation, gas lines, etc.

What most people remember is the tip of the spike. A 1ct D Flawless hit $60,000 per carat wholesale. Now it's at about $15,000 per carat.

What people forget is the performance of diamonds pre and post "spike". The diamonds had been steadily appreciating at a nice sedate pace of approximately 6.25% per year. Then the spike hit (people freaking out about their portfolios being eroded by inflation, diamonds beginning to become appealing as a tangible asset investment because of the quantifiable documentation by GIA certificates, etc.), and diamonds went throught the roof.

What most people don't realize is that when they came back down in 1980, they were back at about the same level as before they went up. A "spike", nothing more, nothing less. (Except for the people who got caught at the tip of the spike.)

Mongol, the popular viewpoint that diamonds "aren't that rare", and the value is "artificially inflated" is largely a myth. In order to understand this, one has to study the history of diamonds.

The fact is that diamond is without a doubt a mineralogically rare crystal, which has been bought, sold and traded for over a thousand years. DeBeers (which is the major marketing vehicle for diamonds today, about 60% of the market), has only been around for the last 100 years or so.

A diamond is mineralogically rare, and "labor intensive" rare. 250 tons of earth have to be moved to locate a crystal large enough to cut a 1 carat diamond from. Added on top of this is the rarity of finer qualities, fancy colors, etc. It is a slim minority of diamonds mined which are gem quality.

Diamonds are the most concentrated form of wealth known to mankind, with the exception of plutonium.

Rich, GG
Sarasota Gemological Laboratory
 

fire&ice

Ideal_Rock
Joined
Jul 22, 2002
Messages
7,828
I don't view a diamond as a good investment. That said, it's a heck of alot better than a car. I ask - what will your 25k car be worth in 20 years? A diamond can be handed down as a family heirloom. I think diamonds have (what I refer to as) staying power.
 

Mongol

Rough_Rock
Joined
Dec 24, 2002
Messages
26
'Staying power' thats is a nice phrase. I agree Diamonds can keep pace with inflation. I say a 25k car will be just about 500 at the wreckers in 20 years. I think Diamonds holds its value better than most other commodities. In terms of liquidity I rate :

1)Gold,Platinum Bullions
2)Real estate
3)Diamonds

I still say selling Diamonds require good sales skills and patience.:naughty:
 

oldminer

Ideal_Rock
Trade
Joined
Sep 3, 2000
Messages
6,396
Only very experienced and knowledeable diamond dealers really make investments in diamonds in hopes of making a profit. They want to own the stones as short a time as possible and make money, then buy more diamonds and do the same.

I know of no diamond dealers who hold diamonds as long term investment vehicles. That does not mean they panic when a stone does not sell rapidly. One learns to be patient, but should the right customer and price come along that stone will be gone.

Exceptions to this could be the super fine fancy color stones where the dealer takes great pleasure in the ownership of the stone. That's a personal matter and not necessarily good business practice.

Thinking about appreciation of diamonds over the long run is clouded by their illiquidity when an owner has a need to sell. Negotiating a realistic and fair price when you are not an expert puts you in a difficult position as you will likely be asking an expert to buy the diamond. The expert will not only know diamonds, but will likely be an expert in the art of buying them at the best possible price. That's one of the things I have worked 30+ years on and it is not easy to get me to pay more than I feel inclined to pay. That's real life and business.

Buy diamonds for enjoyment. Realize that they do not deteriorate over time like most other things. There will be some value there when the time comes for them to be sold. Take that money without regret and use it for whatever you need it for. You can define an "investment" in many ways. Just know, up front, that most diamond dealers of substance own real estate, stocks, bonds, and other standard investment instruments, too. In our society those are the major forms of passive investment and for good reasons.

There was a time when diamonds were the escape money for crossing borders and savings the life of one's family. Today the world has shrunken to some extent and we don't have plans to escape tyranny as one might have done 60 years ago. Where can you hide today compared to 60 years ago? Only Osama knows it would seem. For most people, the stockpiling of a diamonds for escaping across borders is all in the past. I see little of this happening today.
 

fire&ice

Ideal_Rock
Joined
Jul 22, 2002
Messages
7,828
But Dave.....I remember reading articles shortly after 9/11 that some of the Al Queda was trading in diamonds.
 

oldminer

Ideal_Rock
Trade
Joined
Sep 3, 2000
Messages
6,396
Maybe they traded in some diamonds. Who knows? For sure they were using something untraceable to transmit funds.
Were they INVESTING in diamonds? No. They were using diamonds possibly as a form of compacting high amounts of wealth into the smallest possible package. Makes it relatively easy to smuggle, has no odor, and no certificate of title.

I doubt they buy diamonds to make money. They are willing to lose a lot of money in order to do their evil work it would seem.
 

fire&ice

Ideal_Rock
Joined
Jul 22, 2002
Messages
7,828
No, you are right - I doubt they are "investing" in diamonds. I do, however, think that diamond "trading" still exists -perhaps in more unsavory situations. Money laudering w/ Art still exists.

I'm with you about the investment part of diamonds. A novice could loose his/her shirt. BUT, what if someone was to finance a broker to buy stones? I've invested in (and taken investors) various items that were not my complete expertise. My money is totally at risk (with plenty of cushion not at risk). I've done quite well.

That said, I would not buy stones on my own to hord for future profit; but, with the aid of "council" I would consider buying "distress" sale diamonds and banking on the economy improving.

Probably way more information than anyone needs. I just find the whole thing fascinating. I've seen people buy land just for the tree inventory. I guess I like to see diversity - but ONLY with being able to take a hit.
 
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