Are Diamonds a Good Investment Compared to Gold?

Diamonds and gold are both assets that have been symbols of wealth and status in various cultures for thousands of years. While gold and diamonds have both stood the test of time, are diamonds a good investment compared to gold?

Diamonds as an investment

The beauty of the diamond is something that has captured the hearts and minds of people for centuries and there is no question that the stones aesthetic value is primarily responsible for the diamonds worth. However, when it comes to investing in diamonds, it’s essential to bear in mind that the majority of these precious stones may not always be worth your financial investment. The primary reasons for this can be found on the borro guide to the value of diamonds.

The rise of the gemstones worth in the 20th century stems from the De Beer’s advertisement campaign, encouraging men and women to believe that a diamond ring was an essential part of becoming engaged. The fact that De Beers had a monopoly on the diamond trading market until 2005 also allowed them to control the availability of the precious stone, having a large impact on its value.

The demand for diamonds has increased in China and the US this year, but due to the varying quality in the stones and the constant shift in customer’s tastes in colour, the diamond market can be as a complicated as the chemical process that creates them.

When it comes to diamond investing the 4 things that an investor should have a good understanding of include price transparency, quality assurance, transaction costs and liquidity. (2)

Gold as an Investment

Gold is a precious metal that has been argued to be a safe haven asset under the right circumstances. It has been used as a form of currency throughout most of humanity’s recorded history and like most assets, its wealth is subject to supply and demand which fluctuates over time. The history of gold’s value is transparent in comparison to diamonds, due to the metal gaining a clear value that is usually transparent due its frequency in trade (1).

Although portrayed as a reliable investment gold has been considered by some to be a poor investment, primarily speaking because of the fact that it is an asset which does not have any earnings. It also costs money to store the material (2). The best time that gold supposedly makes a smart investment for safeguarding your earnings is when a country is inflicted with negative inflation adjusted rates (2).

Like diamonds, when it comes to gold jewellery you usually acquire it with a large retail mark-up price so it’s usually best to acquire it in its raw form.

Myths about investing in Gold

While it has been said that gold as an investment is a safe haven, there are research articles which dispute this claim.

A list of some interesting myths explored by Business Insider

  • Gold is a safe haven asset in times of financial strain
  • There is an established standard price of gold
  • Gold works as a reliable currency hedge

For more information about investing in gold you can check out our value of gold page.

Diamonds Vs Gold Charts


Diamond Prices powered by PriceScope

Diamonds vs Gold as an investment

–          The diamond market is currently unpredictable and can be complicated to a newcomer to the industry

–          Gold has shown to be a safe haven in the past against economic pitfalls

–          Common diamonds have a poor re-sale value, however, an iconic stone that has great historical value can have a great rise in value.

–          Most diamonds acquired through jewellers lose half of their value upon purchase due to the large retail mark-up that is added in stores. This makes diamonds resale value very poor in comparison to the sum spent on purchasing it. However, some rare and iconic stones can offer an investor a terrific financial opportunity if one has the capital to acquire them.

In comparison to diamonds, it appears that gold is the safer avenue for investment, despite its recent decrease in value. When it comes to buying diamonds vs gold, the uncertainty of the diamond market means that it has the potential to go either way due to the asset’s worth being susceptible to fashion trends. Gold, however, has been said to stand the test of time.

References

(1)  http://en.wikipedia.org/wiki/Diamonds_as_an_investment

(2)  http://www.theatlantic.com/business/archive/2013/06/gold-was-a-horrible-investment-from-1500-to-1965/277186/

 

About the Author:

Adam is a freelance writer that focuses on luxury asset trends for Borro Private Finance.