“Diamonds are forever,” the title of the famous 1971 James Bond movie is related to the topic of this article about investing in diamonds. The movie title is 100% true as diamonds are known for their ability to withstand adverse conditions and the passing of time without losing anything from their brightness and worthiness. That’s why many investors turn to them when they want to secure a part of their investment portfolio, feeling safe that even in a market crash they will still have the capability to buy and sell assets.
Most businesses feel the pinch of tightened purse strings in times of economic instability. The luxury stone has continued to move from strength to strength of late, dramatically rebounding from its recession in 2008, and its outlook today is almost as bright as the stones themselves.
Diamonds are extremely difficult to come by, unlike many resources, and mining has been compared to finding a needle in a haystack. According to several industry surveys and analysts, due to the dearth of new mines and the depletion of existing ones, the scarcity of rough supply is considered the biggest problem facing the diamond industry. Mining analysts note that “diamond production is likely to decline over the next five to ten years as mines reach the end of their lives. This industry is finite; resources will come to an end that poses a continuing risk to the industry.”
This supply-demand imbalance will most likely be met by substantially higher diamond prices, resulting in either an increase in synthetic diamonds or a new supply of mines. With a typical 8 to 10-year lead from exploration discovery to mining, analysts are wary as to how the industry will respond to the shortage in the medium term. Up to 5% of the global market for polished diamond jewellery comes from China and it is estimated that up to 50% of the major purchases over the past few years have come from China and South East Asia at the top end of the market for valuable and fancy coloured stones. “China is a major growth market for diamond sales, and for several years De Beers has been actively selling engagement rings to Chinese consumers-with good results,” Deutsche Bank analysts said. With demand from Asia unlikely to dwindle and a potential restocking in US demand still to come, it is pointed out that the structural deficit in the diamond market will only put further pressure on prices.
Market statistics show that the diamond market is rising, fuelled by economic uncertainty. Investors will always be searching for ways to make their portfolio more diverse to be able to face the consequences of a financial crisis without severe losses. Maybe that James Bond movie was in right after all!