Why are Diamonds a Good Investment?

February 03, 2020 - Jewelry & Luxury Items

The American demand for diamonds makes this gemstone market an $80 billion-dollar industry.

Projections for growth continue to show promise that the value for diamonds will continue to mirror the precious metal industry. Investing in diamonds can actually make a savvy investment choice. Still, many are apprehensive about tying up their finances into such a niche market. The uniqueness of each gem makes investing in diamonds a financial decision that takes some expertise. As with any investment, knowing what you’re doing makes a world of difference between making money and struggling to turn a profit!

Before deciding to invest in diamonds, get to know the fundamentals of what you’re getting into. Read on for 3 reasons why diamonds can be a good investment choice to sell at a profit!

3 Reasons to Consider Investing in Diamonds

1. Diamonds are a Hard Asset

Just as with avant-garde art, diamonds are a hard asset that retains value over long periods of time. When you begin collecting you can diversify your portfolio. Knowing what to look for in each gemstone helps you gather eclectic, high-value stones.

As the precious stone forms from compressed carbon, there are dozens of variables that affect the final product. The majority of diamonds on the market are white diamonds but naturally occurring mined diamonds also develop into other rare colors like yellow, blue, and pink.

After a diamond is mined it still needs to be cut and polished before it can be appraised by the Gemological Institute of America (GIA). A diamond is graded based on the 4 Cs: cut, carat, clarity, and color. A diamond’s grade is based on the gemstones performance in these four categories.

As the demand for diamonds continues to grow, the GIA has perfected the grading system into a rubric for determining a diamond’s value. With this systematic appraisal, there is a more universal appraising system than in the past. With a set standard, dealers and investors are speaking the same proverbial language. Not only can investors look for commonality between stones, but they can identify what makes a stone more valuable.

2. Diamonds are Inflation Proof

During the 18th century, there was an economic shift known as Mercantilism or the Mercantile System. This system was designed to build a country’s wealth and prosperity. During the shift, many countries shifted to printed currency instead of using gold. Meaning that value was assigned to money based on economic metrics. This also meant that printed currency was subject to inflation.

A non-mercantile currency like gold and diamonds don’t inflate like print currencies. Many physical commodities are actually inflation-proof. Since there is a threshold for the number of diamonds that can be mined annually and the number of diamonds that exist in total—a diamond’s value does not inflate. This is different than appreciation and depreciation. You’ll never wake up to a world where there are too many diamonds but too many dollars can be printed.

In fact, statistics show that gem quality naturally diamonds will rise on each year by 6%. Standard quality gemstones will appreciate anywhere from 1.5% to 4% compounded annually.

3. Rarity

Diamonds are by nature intrinsically rare. It’s not so much the actual material of a diamond, but the quality of the precious stone. Many diamonds with too many inclusions are used as pieces to function in industrial tools since they are composed of such hard material. Again, diamond investors will refer to the 4 Cs to identify rarity. A diamond with fewer inclusions (flaws), a perfect cut, high grading on the relationship a stone has with light refraction, and carat (weight) all determine how rare a diamond truly is through the lens of the GIA’s standards.

To get a more in-depth understanding of how the 4 Cs work read our article on how to know what diamonds are worth.

Another factor that makes naturally occurring diamonds even rarer is the saturation of simulants and synthetic diamonds. As technology has found more advanced methods of growing diamonds in laboratories, synthetic diamonds have proliferated the diamond market.

Simulants have a completely different chemical composition than diamonds. These ‘fake diamonds’ are almost valueless. Synthetics share the same properties as diamonds but are not as rare as the natural gemstone. There is no real competition between lab-grown diamonds and mined diamonds. Most labs are honest businesses that want to provide a cheaper option than mined diamonds. The laboratories also laser engrave their diamonds to ensure there are no discrepancies. Still, the availability of synthetics and simulants makes the real thing much more alluring and boost the value of investing in diamonds.

David Stiebel
David Stiebel

David Stiebel is one of the cofounders of PawnGuru. David was educated at MIT, where he studied Math. He subsequently worked at Bain as a data scientist before starting PawnGuru in 2015. He started PawnGuru to build a better tool for pawn shops and consumers to connect.

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