Why are diamonds not a good investment?

(investrecords.com) – If you are an investor, diamonds may be a good choice for you due to market volatility and rising prices. Diamond prices are more stable than other jewelry. Diamonds, which De Beers calls “forever”, are considered a good investment no matter what happens in the market. You can also buy high-quality diamonds in jewelry or expensive jewelry and give it to a relative or pass it on to an heir. This can also be considered an investment. Dave, on the other hand, believes that the best way to avoid costly mistakes is to educate investors about the pros and cons. Dave is in charge of the blog, so if you want to buy diamond jewelry or wholesale diamonds, he’s the guy in charge. Should I invest in diamonds? Diamonds seem like a good investment when you look at them on paper. When you buy them, you get a lot for your money because they have a long shelf life and great value, and they are lightweight, easy to move and store (unlike that priceless Ming Dynasty vase you just purchased at auction ). While history suggests they will rise in value in the future, that doesn’t mean they won’t fall in value. Diamonds, on the other hand, are not worth the money it costs to make them. Firstly, the diamonds come in boxes that are much larger than they should be. Gold is priced by weight, and diamonds do not have a universal price per gram. This is because, let’s face it, one gold bar is about the same as any other gold bar. Value must be determined because no two diamonds are alike. Each of them has unique characteristics that give it a higher or lower price. When it comes to choosing a diamond, it can be difficult because there are so many options. If you’re looking for a new way to invest, you might want to consider diamonds. Diamonds may be a good investment in light of low interest rates and falling stock markets, but it’s not entirely clear. But how can you be sure when buying diamonds that your money will bring profit? There are some downsides to buying diamond jewelry. Is it worth it? Although diamond jewelry has many benefits, as an investment it also has some disadvantages and risks. The first problem is that there is no clarity on prices. It is difficult to track the price of diamonds because there is no price index like there is for gold, so there is no such option. Supply and demand are the only things that influence diamond prices. Investing in diamonds involves a second risk: gemstones are not tradable commodities. Selling diamonds is much more difficult than buying them. People are ready to give money for them, but this is not enough. In the long run, people who buy diamond jewelry have to face a lot of problems. To reap their benefits, you must be willing to wait. Diamonds are not the best short-term investment. In the long term, they should be part of your investment plan. If you are patient you can add them. Too much money has been spent When investing, it is useful to remember the saying “buy low, sell high”: in the case of diamonds, buying low is harder than it seems. It all starts with taxes. You’ll lose 20% of your money if you don’t buy from a place that doesn’t charge VAT, or through a company registered for VAT (or whatever the tax rate is in your territory). The value of your diamond needs to increase by 20% for you to break even. This is the second one. And then there is the retailer’s markup. To get the best deal, you need to contact different stores. Prices can vary greatly from store to store. If you’ve ever tried to sell your “investment” diamonds back into the trade, you know how frustrating it can be to find out that you were paid too little for them. Even though online sellers have changed the diamond market, it is still possible to get a great diamond at close to wholesale prices from reputable jewelry companies like Quality Diamonds. Thirdly, some costs were not mentioned, for example, the cost of installation in the frame. It would be great to have a safe full of diamonds hidden behind a piece of art. Most people like to wear their diamonds in a setting. If you decide to sell, you’ll likely only get scrap metal prices where you live. What about insurance? Because diamond jewelry is so valuable, if you don’t have insurance, you will have to pay for it yourself. Too much faith If you want to get rich quick, investing in diamonds is the worst thing you can do. There is no evidence that Del Boy bought five boxes of diamonds to sell at Nag’s Head for a quick profit. Many people who invest in diamonds get frustrated when they don’t get an immediate return on their money because it takes a long time for diamonds to appreciate in value. Just as gold prices can rise or fall, diamond prices can rise or fall. Overall, the way they have behaved in the past suggests that they will grow, but at a very slow pace. You can’t just buy a diamond and then sell it for a profit five years later; this is impossible. This means that if you decide to invest in real diamonds, your money will be “locked up” for a while, but in a beautiful package. Make sure it’s something you want and can afford. To get your money back, you’ll have to sell the item early, which means you’ll likely get less than you paid for it. To make a good diamond investment, the last and most difficult step is figuring out which diamonds to buy first. Since these diamonds are easier to sell and are more likely to sell for more money in the future, you should invest in one now. For the most part, getting certified is the most important thing. It should also be noted that when we say “certified,” we do not mean one of those certificates issued by the store you are buying from. Even if you are buying a diamond for investment or for marriage, it matters. There are many reasons why you should do what you do. If a diamond has been independently verified, selling it will be much easier and at a better price, especially if it is certified by one of the best laboratories, the best being the Gemological Institute of America (GIA) and the American Gem Society. AGS). Keep the certificate separate from the diamond and keep it in a safe place just in case. If the shape of a diamond is important, then its color is also important. The most popular are round cut diamonds. If you decide to sell your diamond, you will have access to the widest possible market. You can always get a princess cut diamond instead of a round diamond if you don’t like the shape. First, you should always choose a very well-cut diamond with good color and clarity values. However, don’t be fooled into thinking that you need to buy the biggest and best diamond in the world. Actually, this is not true. Because it is so rare, an extremely rare diamond will only appeal to a very small group of people and will be harder to sell. Instead, you should try to buy a diamond that appeals to both trade clients and the general public. You can earn money by investing in diamonds, which is one of the safest ways. The good thing about this business is that they keep the same prices no matter what happens in the market. When you buy diamonds, you are protected from market crashes and inflation. In a weak economy, investors are more likely to sell things other than diamonds. It is expected that there will not be many diamonds on the market. Russian investors, including wealthy ones, have fewer and fewer opportunities to invest in the stock market – investing in foreign assets is now risky (moreover, the Central Bank intends to temporarily ban their purchases), and Russian securities may unpleasantly surprise – as in the case of Gazprom’s refusal to pay dividends contrary to the recommendation of the board of directors. In this regard, alternative investments in real estate, jewelry, art, in particular diamonds (private individuals are prohibited by law from buying diamonds) may be of interest. Investments in diamonds are seen as a collecting opportunity on the one hand, and an investment opportunity on the other. According to alrosadiamond.com, from 2005 to 2020, pink diamonds returned 362,4%, while gold returned 267% during this period. The return of blue diamonds (238,3%) exceeded the return of the S&P 500 index (201%), while yellow and colorless diamonds (over 5 carats) were 45 and 63%, respectively, and exceeded the return of platinum (10%). Since March 2022, the interest of private investors in the investment diamond program of the Russian diamond mining company Alrosa has increased several times compared to 2021 levels, says its representative. Diamonds are one of the few foreign currency-linked assets available in Russia today. Stones are sold for rubles, but their prices are tied to world prices, which makes this asset an effective alternative to the dollar – capital-intensive and mobile, notes an Alrosa representative. VTB’s private banking division has noted an increase in the interest of wealthy Russians in diamonds since the first wave of the 2020 pandemic, says Dmitry Breitenbikher, head of private banking and Privilege at VTB, and attributes it to the fact that this asset makes it possible to receive dollar returns, although settlements in transactions occur in rubles.

Who are diamonds suitable for?

Diamonds and products made from them are not intended for a wide range of investors – they may be of interest to wealthy citizens and not always for the purpose of investment. Buying a precious stone can be the beginning of a family tradition, a way to create history – buy a stone, give it to a good jeweler and then store it as a family heirloom, passing it on by inheritance, says Alexey Potapov, director of the investment department at UFG Wealth Management. As for the value of such an investment, all this is very subjective – the price of the same stone can differ significantly, the expert warns. According to Potapov, alternative investments, and diamonds are among the top 10 most popular alternative investments in the world along with, for example, rare whiskeys, can make up up to 10% of a portfolio. Investment diamonds today have become an alternative to investing in foreign currency; the profitability of this conservative asset always increases in a crisis situation, notes Breitenbecher. According to him, such stability makes diamonds an attractive investment instrument that will help preserve and increase capital in the medium and long term. The minimum threshold for investing in diamonds starts at $20 and is available to any investor, and the duration of such investments is from five years, says Breitenbecher. The average yield on diamonds, according to the Rapaport Diamond Index, is about 000–4% per year. This is a long-term trend, it has lasted for the last few years and is caused by supply exceeding demand, the expert adds. Alrosa’s investment program for private investors has been in effect since 2017, and based on the experience of these years, it can be said that diamonds have a double value in the eyes of clients – both collection and investment, a company representative notes. In good years, buyers are more likely to be driven by “collectible” considerations than in times of economic and financial turmoil. But they still mean the investment component.

Diamond Features

Even if an investor wants to buy a diamond or sell it, it is not easy to do so. You can buy investment diamonds only at auctions under the Alrosa Diamond Exclusive program or from jewelry factories, for example, from Bronnitsky Jeweler and the Moscow Jewelry Factory. There is no developed secondary market in Russia, Potapov adds. Only organizations and individual entrepreneurs registered with the Assay Office can sell precious stones; citizens cannot resell stones to each other. In terms of liquidity, stones are noticeably inferior to gold – there is practically no infrastructure for secondary circulation for them, adds Finam analyst Alexey Kalachev: gold bars have a mark, and each transaction with stones will require professional expertise – and it cannot be cheap. Another feature of such an asset is that diamonds cannot be standardized, unlike traditional exchange commodities such as crude oil, precious metals, etc., says Alexandra Falkova, portfolio manager of the investment company Management Company First. They are characterized by a significantly larger number of different properties (transparency, stone size (carat), the presence of impurities, etc.), which influence the final assessment of their value, notes Falkova. All cut forms have their own parameters and characteristics, including polishing and proportions of the stone, which affect the final cost. As history shows, very often the assessment of the value of a diamond also depends on the changing fashion for certain types of jewelry, the expert explains. For example, in the mid-2010s. Diamonds with impurities were in great demand, giving the stones a certain color. Then the fashion for colored diamonds passed, which ultimately led to a decrease in their value. Another obstacle for a private investor now is the price of diamonds on the Russian market, which is significantly higher than global prices at the current ruble exchange rate, says Ivan Malina, investment strategist at VTB My Investments. According to him, the average price for diamonds smaller than 0,5 carats offered by Alrosa online is approximately 2 times higher than global prices. “BCS World of Investments” expert Valery Emelyanov also names among the risks the inclusion of Russian-made diamonds on the sanctions list – this will bring down their prices on the world and then the domestic market, the expert believes. According to Breitenbecher, the influence of the external geopolitical background is mainly due to the exchange rate, but otherwise, from production and supply chains to sales and buybacks, Russian investors will not have any problems. Resetting VAT to zero (currently 20%) can revive the market for diamonds and precious stones in Russia, experts believe. The abolition of VAT on the purchase of diamonds will be a major step towards the development of the diamond market, Breitenbecher believes.

Tasty carat

The maximum investment potential has colorless diamonds weighing from 3 carats with high color quality characteristics, i.e. color from D to G (from completely to almost colorless) and clarity from IF to VS2 (from perfectly transparent to containing minor inclusions invisible to the naked eye) high cut quality, not necessarily round, says an Alrosa representative. On the one hand, they are quite rare and have a noticeable potential for growth in value and at the same time are quite liquid. Indicative prices for 3-carat diamonds at the end of July 2022 are almost 21% higher than a year ago. The threshold for entry into this exclusive range is several tens of thousands of dollars, notes an Alrosa representative. The best diamonds for investment are colorless diamonds of 5 carats or more: colors D, E, F, G and quality IF, VVS1, VVS2, VS1, VS2, according to the website alrosadiamond.com. The optimal investment horizon is from 10 years, and the minimum entry threshold is $250.

Weather vane: Commerzbank

Barclays
British investment bank Barclays lowered its target price for Commerzbank from 8 to 7 euros, maintaining a “hold” recommendation and a “on par with the market” rating. Positive business trends are likely to continue into the second quarter, according to a study released Friday. An interest rate hike by the European Central Bank (ECB), as well as the expectation of further increases, will help the German bank reduce its debt and will be generally beneficial. A Barclays spokesman attributed the new target price to higher capital costs and increased economic uncertainty.
Goldman Sachs
American investment bank Goldman Sachs lowered its target price for Commerzbank to 11,6 from 12 euros, leaving a “hold” recommendation and a “neutral” rating. The profit of the German bank in annual comparison will increase by 13%, and the capital adequacy ratio CET1 (reflects the solvency of the bank) will be 13,6%, the Goldman Sachs expert expects. He explains the price reduction by increased costs of MBank, the Polish division of Commerzbank. New legislation in Poland allows private borrowers to skip monthly payments on current mortgages up to eight times until the end of 2023. MBank expects 60 to 80% of borrowers to take advantage of this option.
RBC
Canadian bank RBC lowered its target price for Commerzbank from 8,5 to 6 euros, with a “hold” recommendation unchanged. The bank’s short-term consensus forecasts will rise due to the ECB interest rate hike, but the risks of a decline in earnings due to the possibility of a further reduction in gas supplies are significant, the RBC study said.
UBS
The largest Swiss bank UBS raised its target price for Commerzbank from 8,6 to 8,9 euros, maintaining a “buy” recommendation. Reports of possible problems with gas supplies explain why German businesses are in no hurry to issue loans. There are also growing fears of a recession and perceptions that central banks’ monetary policy options are limited, the study said. Meanwhile, Commerzbank has sufficient capital reserves, the UBS analyst is confident. He also raised his earnings estimate for the German bank, saying higher interest income should offset rising costs.
JPMorgan Chase & Co.
The American bank JPMorgan recommends “holding” Commerzbank shares with a target price of 8,2 euros. The bank expert included the negative impact of the Polish branch of MBank in his assessments for the German banking group. For this year, it cut its forecast for adjusted earnings per share by 7%, but kept that figure unchanged for subsequent years.
Deutsche Bank
Deutsche Bank confirmed a “buy” recommendation for Commerzbank shares with a target price of 11 euros. With fears that Germany’s gross domestic product will contract by 2023% in 1, experts expect more loan defaults, the study says. But given the ECB interest rate hike, Commerzbank should show solid profitability this year and next, a Deutsche Bank spokesman is confident.

What’s with the prices

According to Rapaport, a price source for professional diamond market participants, polished diamond prices have been declining since March 2022, although year-on-year growth remains. The RapNet Diamond Index (RAPI) for 1-carat diamonds fell 1,8% in June, although it was up 7,4% in the first half of the year (YTD through July 1) and 16,8% year-on-year. expression. The picture is similar for the RapNet indices for diamonds weighing 3 carats, 0,5 and 0,3 carats. But the smaller the weight of the stone, the worse the dynamics of the index. While the RAPI index for 0,3-carat diamonds increased by 2022% in the first half of 0,2, the RAPI for 0,5-carat diamonds grew by 4,1%, and the index for 3-carat stones grew by 9,7 %. Another diamond index, the IDEX Diamond Index, is also declining. From March 7 to July 21, the index lost 7,2%, falling from 158,39 to 146,92 points. Since the beginning of the year, the index has increased by 4,5%. Rapaport explains the June decline in the index by weak prospects for the US and global economies and rising inventory levels. The number of diamonds listed on RapNet rose 4,3% in June to 1,87 million as of July 1. The high volume was achieved despite sanctions that limited Alrosa’s diamond sales and deprived the market of approximately 30% of global production, Rapaport said in a release. A recession in the global economy will put short-term pressure on prices, Malina said. In the medium term, the analyst expects an increase in diamond prices due to shortages and natural restrictions in the extraction of natural stones: in 2021, diamond production decreased by 17% compared to 2019 and by 23% compared to peak values ​​in 2017–2018, but demand remains high. Malina also notes that sanctions against Alrosa could lead to market fragmentation: diamonds from other companies could be sold at a premium in Western markets, while Alrosa diamonds could be sold at a discount in the markets of Asia and the Middle East. According to the expert, in conditions of shortage, Alrosa’s diamonds will be in demand, despite the sanctions: the share of final buyers of diamonds outside the USA and Europe exceeds 30% – the company’s diamonds can be sold to these markets (Alrosa’s share in the diamond market is approximately 29 %). New diamond deposits are becoming increasingly difficult to find, old ones are drying up, and demand is fueled by collectors, millionaires from Asia and marketers of large diamond companies, adds Falkova. According to her, medium-sized diamonds (2–10 carats), as well as cut diamonds produced from them, are unlikely to become cheaper. Under the current conditions, the Russian diamond market has great potential for significant growth, Breitenbecher believes. According to VTB, about 25% of the volume of raw materials mined in Russia should remain within the country, turn into diamonds and be sold in Russia – this is an indicator that the private banking segment can provide.