Looking for a rock-solid investment?
Diamonds have increased in value by 10-15 per cent since the start of the year as investors move into hard assets, writes Alanna Gallagher
'MY FINE jewels are the only part of my portfolio that still brings a smile to my face," a well-known Dublin businesswoman recently admitted to Gerry Appleby, managing director of Appleby Jewellers.
The bling years may be over but, as markets continue to crash, the new rock-solid investment is in diamonds, king of the carats.
"We've had a few clients, businesspeople, who got their money out of the markets early and have purchased a diamond in the raw for a quarter of a million plus," says Appleby.
"Large stones of three carats and upwards have increased in value by 20 per cent to 25 per cent in the last 15 months," says Michael Rock, a Grafton Street jeweller who has also started to broker deals direct from source for a small percentage.
Eighteen months ago, Rock sold a diamond to an investor for €80,000.
He subsequently offered the buyer €150,000 for the same stone because another client wanted a slice of the glittering investment prize. The original purchaser declined to sell.
Appleby says diamonds have increased in value by 10 per cent to 15 per cent since the start of the year. "Some of this reflects the weakness of the euro as they are quoted in dollars," he adds.
He predicts that diamonds will hold their position for the next six months.
Trading at Appleby's last month was up on November 2007. This, Appleby says, took him by surprise, but he attributes the rise in profits to the flight from stocks into hard assets.
The advice to people seeking to invest in diamonds or other precious stones is to buy one big stone - the biggest you can for your money.
Cut, clarity and colour are important. So are certificates from either the Gemological Institute of America or the Diamond High Council of Antwerp.
Diamonds have long-term investment value, says Paul Sheeran of Paul Sheeran Jewellers. The smart money was already in diamonds in 2007, he adds. "If you have a quarter of a million to invest, how safe are the banks these days?"
"A diamond is a resource that is limited and that has a value," says Appleby.
"It's safe money and will always hold its value," adds Sheeran.
According to Appleby, the diamond mining sector is embarking on major production cuts as it is in their own interests to maintain scarcity and value.
De Beers diamond company, whose sales have increased exponentially in the past two years, is putting some of its mines into a maintenance period, which will take them out of production.
Appleby cautions, however, that it would be imprudent to put your entire portfolio into diamonds.
"Bankers recommend you put between 7 per cent and 10 per cent of your portfolio into physical assets like gold and diamonds and even art," he says.
In addition, investment diamonds may be left in a safe-deposit box, perhaps never even seen by the client. "These are purely investment pieces and are sold as gemstones which may or may not be incorporated into a piece of jewellery eventually," says Appleby.
When you want to sell your diamond, it is put on the world market.
"Everyone from diamond dealers to movie stars are looking for the rarer stones," says Rock.
Buying the diamond is the easy part, says Sheeran. "It's buying something that will also sell that is the trickier part of the equation."
Most buyers want a round-cut brilliant stone of VS1 or VS2 clarity, he says. "The bigger the stone, the rarer the gems and the more potential value it has."
A prudent investor should ask for a written promise from their seller to repurchase the diamond at or near the purchase price within a specified period.
In the retail market, Fields jewellers, which expanded into Britain last year with the acquisition of the Fraser Hart Group, has noticed a return to diamonds among customers.
"We've had increases in the order of 20-30 per cent in the average price of the diamond jewellery we're selling," says Fields chief executive Noel Coyle.
In ancient times, diamonds were used as a talisman to ward off evil and provide protection in battle. In the dark ages, they were used as a medical aid. St Hildegarde is said to have believed that a diamond held in the hand while making the sign of the cross would heal wounds and cure illnesses.
The stones were also ingested in the hope of curing sickness.
In addition to being a safe investment, perhaps diamonds might conjure up a cure for the present malaise of the markets?