Can diamonds be a good investment? I remember reading something about the exploration business diamond search, when studied geology in college. According to the color issue while there was a consensus that only “brown” diamonds suitable for industrial use. A couple of years ago a message from Pastor-Geneve discussed the growing demand for “sparkling” diamonds. I looked at the pictures and realized that it had the same brown diamonds, previously considered useless – now they have been re-branded and sold at a premium.
How does it work in the case of investment. Imagine that you are buying the company’s shares worthless, Inc and one day, after endless campaign she converted to Apple, and the shares are now worth a fortune. Alternative scenario – you buy Enron stock and once it becomes a worthless, Inc. It’s one thing if these changes are due to fundamental changes in the operating and financial performance of the company. It is quite another if due to media campaigns or statements of any analyst.
The yield of diamonds as an investment can be viewed using the index RapNet Diamond Index (RAPI) for polished stones of 1 carat.
Index gives us the sale price in the hundreds of dollars per carat Top 25 round diamonds 1 carat within a certain range of color and clarity. Your diamonds may cost more or less depending on the factors, which are too many to talk about them here. Also unknown is the difference between the buying and selling which is quite high.
Data availability is also small. The numerical values of the index are given in the last three or four months, while the rest of the curve has been reconstructed on the basis of monthly data on the percentage of growth. Mistakes are a growing trend, so that the older part of the curve may indicate malfunctioning.
Industry information indicates that the rapid rise in prices for diamonds was a recovery after falling prices that occurred in 2007. On this occasion, we can not say anything because they do not follow the prices for diamonds at the moment. The rapid growth since last December to June this year, very similar to the mark of the second round of quantitative easing.
I used the closing price per ounce of gold against the index RAPI from the first graph. When the ratio increases, the price of gold grows faster than diamonds, and vice versa. Based on our limited number of data, it seems that diamonds are a better investment than gold during the second round of quantitative easing, but not at other times.
What does this mean? In periods of quantitative easing in the inflation rate wins. Diamonds have historically helped to preserve capital during inflationary and hyperinflationary episodes, despite the low liquidity. In this case, it was interesting to know whether the investment market in diamonds more money during the second round of quantitative easing, than at other times.
I myself have invested in a diamond only once, shortly before the wedding. The yield satisfying, but it is difficult to quantify.