Are Lab Grown Diamonds An Investment?
On July 24, 2018, the world has changed forever! The Federal Trade Commission has made a change and now refers to Lab grown diamonds as natural Diamonds. They refer to the pure scientific & chemical composition of a diamond rather than its source. How does that affect the diamond and jewelry industry? how does it affect the diamond investment industry? clearly each (Jewelry and investment) is different and distinct. What if we take paint, put it into a 3D printer and re-create a Picasso on canvas? Chemically, both the 3D machine printed and the original painted by Picasso himself are the same, no? So why not refer to reproductions of a Picasso using the exact paint as a “Picasso”?
Currently, the estimate total value of the Lab Grown Diamond industry stands at around $150 million per year, and predictions are that it will surpass the $1 billion mark in just a few short years. Bain & Co. is of the same opinion, and in their last annual report on the diamond industry, make it very clear, and dedicate a substantial section on this subject.
It seems that millennials may be more in favour in acquiring lab grown diamonds due to their ethical as well as their environmental reasons, but do millennials really understand what this all means? or do they just fall for sophisticated wording? what does it mean ethical? if they refer to child labour then what about clothes made in Bangladesh by children as well? what about cell phone metal components which derive due to child labor in some African countries? if we want to tackle environmental reasons, then what about the energy required to operate all these machines where Lab Grown Diamonds grow? similar to recyclable bags, it may take more energy to recycle bags than to make new ones. Do we know how much energy is produced and wasted by these machines (that make diamonds)? and is it really “ETHICAL” that Lab Grown Diamond Producers seek to call their product real? or are they pushing the boundaries of the law?
We can argue about Natural earth made diamonds and lab grown diamonds until we are blue in the face, so for the purpose of this article, let’s address the Investment industry.
Lab grown diamonds will only affect demand for the jewelry industry and not the diamond investment industry. The diamond investment industry can be compared to the art investment industry.
As technology evolves and advances, the cost of creating Lab Grown Diamonds will decrease substantially and so the cost of the lab grown diamonds at stores will also go down over time. DeBeers stepped up to the plate and did just that. DeBeers is offering lab grown diamonds for less than $800 per carat, and surely this price will go further down as DeBeers completes its new manufacturing facility. It will probably go down to less than $400 per carat over time. This is down over 90% from the $4,000 per carat cost it was up to recent times. Natural diamonds formed in the earth had never had their value drop by 90% over such a short period of time.
One element we look at for investment purposes is rarity. No matter how much rough diamonds are unearthed from mines, there is a finite quantity as to how many diamonds are produced over 1 carat weight for example, we just don’t know what we are getting out of the earth. Lab Grown Diamonds on the other hand, will be produced based on an order, meaning we can decide on whatever size, clarity and shape, and a lab will produce it, sort of like “made to order”. This will never happen to diamonds that come out of the earth. The DPA (Diamond Producers Association) had it right by saying that “Real Is Rare” campaign, referencing to diamonds coming out of the earth.
The other element we consider for diamond investment purposes is resale value and liquidity. Currently, there is no resale market for lab grown diamonds, and in fact there is no reason to have one. Why? Because most likely that by the time a person wants to resell his/her lab grown diamond, new ones can be produced at much lower costs, so why buy a used lab grown diamond when you can buy a new lab grown diamond cheaper? natural diamonds have a resale value, and in fact the market for second hand diamonds continues to grow, partly by demand within the diamond industry.
The industry for Lab Grown Diamonds will surely grow due to demand by millennials who will look for less expensive alternative for rings, similar to consumers buying reproductions of master artworks printed on regular paper. Investors will always want the natural, earth mined diamonds in their portfolios, like an investor buying that single, real Picasso. Rest assured that when it comes to sentimental acquisition of jewelry such as bridal rings, or unique gifts for a loved one, we will automatically desire to buy the natural diamonds from the earth and not Lab Grown Diamonds. Lab Grown Diamonds can be compared to a body without a soul. It is the soul that gives life to the body and not the other way around. Only everyday jewelry will be affected and not the investment side of the industry.
Do you think Laurence Graff would pay $53 million for an 1,109 carat, Lab Grown, Colorless, rough diamond? or $8.8 million for a 13.33 carat, pink, lab grown rough diamond?
Anybody is looking for a 302.37 carat, Lab Grown Diamond? or will they want the real thing?
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