Three red diamonds weighing 0.35 carats, a 0.42 carats and 0.22 carats
The old adage reads as follows, “There are two certainties in life – death and taxes.” However, empirical evidence may require the restatement of this proverb to, “There are three certainties in life – death, taxes, and fancy color diamonds.”
When the Global Financial Crisis (GFC) hit in 2008, it was a shot over the bow to the world, its economies and financial markets, and its inhabitants. Politicians, instead of addressing the root problems that caused this near collapse of the financial system, implemented short-sighted policies that would ultimately lead to the extended financial hardship of millions without resolving structural problems.
Recent turmoil in financial markets triggered by the Standard & Poor’s downgrade of the U.S. credit rating had many people drawing parallels to the collapse in financial and commodity markets in 2008. However, there was at least one visible ray of light during the recent upheaval - gold powered to record highs above USD1,800 per troy ounce and the Swiss franc, ostensibly a gold-backed currency, also found strong support as a safe haven currency. This was in stark contrast to what occurred in 2008 when the GFC forced wholesale liquidation across all asset classes.
However, an asset not traded on financial markets, rarely mentioned in the financial media, and known to relatively few has been a safe-haven asset for decades and continues to outperform most asset classes, whilst demonstrating unique advantages found in no other asset class. Fancy color diamonds have displayed steadily appreciating prices over a period of decades (prices appreciated approximately 2000% over the period 1977-2007). In fact, since 2002, the entire spectrum of fancy colored diamonds has seen annual price increases from 10% to 35%.
"In the words of fancy color diamond expert, Leibish & Co.’s President Leibish Polnauer, “As the U.S. economy started to recover after the 2008 meltdown, stock markets and the finance industry made a powerful recovery. However, a year later, the recovery seems to be losing momentum. Stock markets and commodity markets have been falling.U.S. unemployment data is poor as is consumer sentiment. The diamond industry is not immune to this and still, diamond prices are probably powering ahead as they are emotionally connected to gold and not to stock markets.”
When the price of gold fell 30% in 2008, diamond prices generally fell less than 20% with rare diamond prices falling less than 10%, if at all – an exemplary performance according to any benchmark investment criteria.
As evidenced by extensive rioting in Europe and flash mobs in the U.S., the world social and economic situation is only going to deteriorate further before any possible improvement. And this is before considering the rampant inflation as well as a predicted food shortage. The inevitable outcome from the irresponsible monetary policies of many of the world’s central banks will result in rising prices as “easy” money finds its way into the system. Similarly, the growth of China’s and India’s middle class as well as a reduction in arable land will result in a perfect storm for food and food prices.
Yes, the situation looks pretty grim, however that is the hand we have been dealt. The question is, how do we best play this hand? Remember, in turbulent times there is always opportunity for those with the foresight and courage to act on their convictions.
With supply limited and the Chinese, Indian, Russian, and Latin America markets beginning to enter the fray, the appreciating price trend for fancy color diamonds seems to be assured.Add to this the securitization of fancy color diamonds via the advent of a series of closed-end funds targeting the rare diamond market and it is apparent that the broad-based acceptance of fancy color diamonds has begun. This can only augur well for future price rises.
Fancy color diamonds demonstrate unique characteristics. They are affordable, durable and easy to conceal, transportable (you can easily take a USD5 million stone across borders), not subject to cartel control, have shown long-term price growth, are an unregistered asset class and consequently are a highly private asset, have well established valuation methods, and can be appreciated and utilized on a daily basis.
Just ask Polnauer, “The downgrade of the US Treasury will not downgrade diamonds. Treasuries are manufactured with a few clicks of a keyboard, diamonds are created following thousands of years of work from Mother Nature and countless more years finding, mining, and polishing them.”
The well known words of George Santayana also bear repeating, “Those who cannot remember the past are condemned to repeat it.” Economies run in cycles, we live in turbulent times, preserve and grow your wealth prudently using assets that have always flourished during adversity. Fancy color diamonds meet all these criteria and more.