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Rock solid investments are hard to come by, but diamonds are an option

A rock solid investment is hard to come by during these uncertain times – but a diamond is a sparkling option that you might consider. 

Over the past 12 months, the average price for this precious stone has risen by 6.4 per cent while over five years it is up 6 per cent, according to the industry’s Diamond Prices Index. 

But some of the highest quality diamonds have seen prices rise by more than a third in a year and are up almost 60 per cent in five years. 

Set in stone: Some of the highest quality diamonds have seen prices rise by more than a third in a year and are up almost 60 per cent in five years

Such returns put most stocks and shares to shame. Over 12 months the FTSE All-Share Index is down by about 2 per cent while over five years it has risen by 1 per cent. 

Always seek out professional guidance 

Diamond trader Tobias Kormind, co-founder of online jewellery trader 77 Diamonds, warns that although exciting, the diamond market is unregulated and fraught with dangers, so expert guidance is essential. 

He says: ‘Few of us have any idea of the true value of a gem at first sight – whether it is either a worthless trinket or a priceless heirloom.’ 

He adds: ‘While it is key to seek advice when buying and selling, you must still be careful as consumers get exploited, overcharged or paid too little for a precious stone in their possession.’ 

Kormind believes anyone interested in trading gems needs to speak to a member of the National Association of Jewellers, which has a code of conduct ‘based on honesty, integrity and professionalism’. 

Yet he warns that high street shops might try to sell diamonds at retail rather than wholesale prices – eating into the potential for future profits. 

He adds: ‘As an individual you should be aware there is VAT to pay on diamond buying, which you will not recoup when selling unless you are VAT-registered. This means stones will have to rise in value by at least 20 per cent for you to make a profit on them.’ 

There is also a minimum 10 per cent capital gains tax to pay on any profits made on stones worth more than £6,000 sold above a £12,300 annual exemption limit. 

Study the ‘four Cs’ to gauge quality 

Gem values are based on the ‘four Cs’ – carat, colour, cut and clarity. 

Carat is the measure of a gemstone’s weight with one carat being 200 milligrams. The bigger the stone, the more valuable it usually is. But a one-carat diamond can be worth anything between £1,000 and £20,000 or more, depending on its colour, cut and clarity. 

For a diamond, the more ‘sparkling white’ it is, the higher the price it will command. Yellow tinges tends to cheapen it. If you opt for a rock with a slight pink hue you may pay far more than for a white diamond, because their prices have been soaring in recent years as they have become fashionable.

Kormind says: ‘The Argyle diamond mine in Australia is renowned for pink diamonds, but closed a couple of years ago causing a fall in supply. In the past five years, some pink diamonds have more than tripled in value.’ 

He adds: ‘Of course, this does not mean prices will continue to rocket, but it shows how values can rise unexpectedly.’ 

The cut is how a craftsman has chipped away at the stone to make it sparkle – so is another vital consideration. 

The clarity looks for imperfections and unless you are an expert looking through a ‘loupe’ magnifying glass, a minor blemish is likely to be missed.

Consider how the stone could be a liquid asset 

Gems should be viewed as a long-term investment – typically held for five years or more. You are usually better off buying a smaller top quality diamond – such as a one-carat stone worth more than £5,000. 

These are termed a ‘liquid asset’ in the gemstone world because they tend to be more tradeable than a larger rock of three carats or more. Commission on sales through a trader work out at about 5 per cent of the price.

Demand a certificate of authenticity 

Valuing gems with an untrained eye is extremely hard, but you can get proof of quality through a professional certificate. 

The most respected is the international Gemological Institute of America (GIA) certificate. This is effectively a report card on the quality of a diamond and lets you compare it with other stones. Thomas Schrock is founder of online trader The Natural Gem. He says: ‘If a stone has a certificate, it should mean it has been analysed by a trusted laboratory.’ 

There are other certificates, including the Ceylon Gem Lab (CGL) certificate issued in Sri Lanka; the Gemmological Laboratory Austria (GLA) certificate and the Swiss Schweizerische Stiftung fur Edelstein-Forschung (SSEF).

Don’t forget other coloured gemstones 

Although diamonds are the most valuable gems, other precious stones such as emeralds, rubies and sapphires have also seen prices rise in recent years.

The Natural Gem’s Schrock says where a gem comes from can impact on its value. He says: ‘A ruby from Mozambique might be just as high a quality as one from Burma, but the Asian stone is worth a third more because of its heritage – Burma has a great reputation for precious gems.’ 

He adds: ‘The value of a gem is a combination of its intrinsic worth, what it looks like and its history, including origin.’ 

Buyers should be wary of ‘buying blind’ from street traders when abroad. In Colombia, emeralds can be oiled to enhance their colour while sapphires from the Indian region of Kashmir and rubies from Sri Lanka may have imperfections filled in to mask their true value. Certificates help avoid such tricks. 

Get your gems valued – and keep them safe 

Diamonds should be kept safe and secure as well as insured. Find a local member of the Institute of Registered Valuers for a professional valuation – for which you might pay from £50 per item. Take photographs and keep all documentation, including purchase receipts and certificates of authenticity, separate from the jewellery. 

Insurers typically ask people to itemise gems or jewellery worth £1,000 or more. Individual cover might cost 1 per cent of its value – so something worth £10,000 might cost £100 a year to insure. But as part of that deal insurers might also want you to keep valuables in a safe. You must ensure you get a professionally rated safe fit for your valuables. 

Try investment funds with exposure to mining 

Exposure to diamonds and precious stones is also possible through investment funds. Examples include JPM Natural Resources, which has about a fifth of its portfolio in mining companies that dig for diamonds as well as precious metals. 

You can also invest in stock market-listed multinational mining giants such as Anglo American. But this does not come without risks. In the last year its share price is down 8 per cent.