In the commodities sector, oil and gas, along with gold and
silver, garner most of the headlines. But that could be a
shortsighted view, considering the potential investment
power of nature’s hardest asset – gem diamonds.
Increasingly, investors are taking a longer look at diamonds
as the price of gold hovers $1,700-an-ounce this week...
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Relishing diamonds isn’t anything new. It goes back to the
ancient Egyptians, where diamonds were highly valued as
gemstones. Ancient Greeks viewed diamonds as splinters of
starts that fell to earth, with many believing that diamonds
were the tears of the gods.
Well, the Greek gods are long gone, but there are plenty of
tears on Wall Street these days. Now, investors are turning
to the precious hard metal to soothe their jangled nerves,
and that has turned the diamond market on its shiny, pointy
head.
Investors considering adding the hard asset to their portfolios can cross one concern off of their lists – the notion that a sluggish economy would prevent consumers from buying diamonds and jewelry. According to the National Retail Foundation, of the estimated 131 million U.S. shoppers out on Thanksgiving weekend, 13.8% of them bought "jewelry or precious metals accessories".
That puts jewelry in the consumers "favorites" category of books and video games, and clothing and electronics, the NRF
reports.
Diamond providers are cautiously optimistic that the trend,
after a brief dip, should continue past the holidays, and
carry over into 2012.
"We’ve seen much more demand than we can supply, especially
for very expensive diamonds, which is where we operate,"
noted Gem Diamonds Chief Executive Officer Clifford Elphick,
which recently saw its stock price to rise to its highest
levels in a year (to $250 per share, before sliding back to
the $200 level in early December). "We expect a pause in the
rise in diamond prices. It is unlikely that prices will
continue rushing ahead as they’ve done in the past year. But
then it will get back in its upward phase."
Diamonds as an investment in 2012
Elphick may be on to something – here are some other trends
that favor diamonds going into the new year:
Big performer in 2010 – Many investors might have missed it,
but diamonds actually outperformed other commodities as an
investment in 2010, according to Saul Singer, a partner at the
alternative assets investment firm Fusion Alternatives, which specializes in diamond investments. Says Singer; "Many might remember 2010 as the year global commodity prices continued to surge. The Dow Jones-UBS Commodity Index ended the year up 36 percent. Strong gains were experienced across all major commodity markets with the industrial metals market leading the charge. Investment diamonds gained 20 percent in 2010, however on a risk-adjusted basis, Investment diamonds outperformed even the surging commodities market."
Overseas growth skyrockets – De Beers, one of the world’s
biggest diamond companies, says that while the hard metal’s
growth was limited to 7% in the U.S. last year, growth in China (26%) and India (37%) were big hot spots – and have continued to be in 2011. "Jewelry" CPI on the upswing – The U.S. consumer price index for jewelry – yes, it actually does exist – jumped by 12% on a year-to-year basis, to a record rate of 182.64 in October. That’s the seventh-straight month that the index climbed above the 170 level, and the first time it exceeded 180 points.
Demand favors diamonds – Some money managers say the
combination of high demand and low inventory has really
driven diamond prices higher – but that’s not stopping the
uber-rich from trying to grab as many high quality diamonds
as they can.
In an interview with CNBC recently, Henri Barguirdjian, CEO of luxury jewelry Graff Holdings, says that burgeoning interest in diamonds as an investment is a relatively new phenomenon.
Barguirdjian tells CNBC that some Forbes 400 types are
investing up to $100 million in the diamond market these
days, mostly favoring "finished" diamonds over rough ones.
He says that affluent investors are starting to view diamonds as a great inflation hedge, and as a low-maintenance investment that is traded all over the world.
But regular investors may want to exercise some caution. Here’s a tip:
By and large, historically, research shows that demand for diamond jewelry is tied tightly to consumer disposable income at a household level – that’s the sentiment from a research report by BMO Capital Markets. Keep an eye on consumer income, and buy and sell diamond stocks accordingly.
What stocks look interesting in the diamond sector?
If prices keep rising, look for stocks that have experienced a decline in share prices, as they have the most room for growth in a highly volatile, but potentially lucrative equity sector.
Both Diamond Trading Company Botswana (DTCB) (a 50-50 partnership between De beers and the government of Botswana and Gem Diamonds fit the bill here, as do smaller outfits like Grizzly Discoveries (GZD), which just announced a big gold and copper discovery in Alberta, Canada, and Diamcor Mining (DMI), which has released positive preliminary reviews of its drilling program underway at the company’s Krone-Endora at Venetia Project.
So if you’re on a commodity hunt, give diamonds a hard look. It might give you the edge you need going into 2012.
Until next time,
Manny Backus
President, Wealthpire Inc.
