As world political and economic turbulence occur, investors tend to run to commodities to preserve and grow their wealth. Gold has always been the favourite for this purpose. Why? Simply – force of habit! “Invest in gold” has been engrained in money-savvy heads for so long that the concept is completely taken for granted.
Interestingly, we have seen in recent years that pink diamonds have outperformed gold at every level for at least a decade.
Pink Diamonds vs. Gold
Pink diamonds (Fancy Pink, Fancy Intense Pink, and Fancy Vivid Pink diamonds to be specific) have shown stronger value performance than gold, and have shown more stability when it comes to price fluctuation. According to the FCRF (Fancy Color Research Foundation), who have been tracking the price changes since at least 2005, gold has averaged about 12.2% annual average return since 2005. Specifically, gold has had a strong performance period between 2005 and 2012, and following 2012 has been lagging many other investments. In contrast, pink diamonds have been more stable and have performed better.
Fancy Pink Diamonds in 1 carat, 3 carat and 5 carat categories vs. Gold Image credit: FCRF
Fancy Intense Pink Diamonds in 1 carat, 3 carat and 5 carat categories vs. Gold Image credit: FCRF
Fancy Vivid Pink Diamonds in 1 carat, 3 carat and 5 carat categories vs. Gold Image credit: FCRF
Here we can see how the compound annual growth rate of Fancy Pink diamonds in the 1,3 and 5 carat weight categories have performed in comparison to the compound annual growth rate of gold. A 1 carat Fancy Pink Diamond has more than doubled its value over the same time period as compared to gold.
Fancy Intense Pink
Here, again, we see consistent performance across the board for Fancy Intense Pink diamonds, and more stability. For some fund managers, even a 0.8% difference may mean that investors will further increase their position in that fund.
Fancy Vivid Pink
It is clear that for the rarest of pink diamonds, those that are Fancy Vivid, have outperformed Gold at every size category. Rarity is a key factor here.
It is obvious that liquidity is also taken into account when investors make their decision because these decisions are still subject to the element of time. If the investor will need to cash out their investment in less than 5 years, it is safer to invest in gold or even more liquid form of investments such as T-bills and bonds, but the implication of this is that the yield will be much lower. On the other hand, if an investor has at least a 5 year period where they will not need the capital, we recommend to invest in pink diamonds as the return on investment is far superior.
I also have to point out that while gold has more transparency when it comes to valuation and has a spot price, this also hinders investors from making superior returns unless their timing is perfect. It is also worth mentioning that in recent years, major global banks have been accused of manipulating commodities such as gold, silver, palladium and aluminium as recently as last year.
Diamonds are the last hard assets not being manipulated by banks, and that is simply due to their non-regulated status. Investors should consider holding a position in some rare diamonds for future growth potential. Pinks are the most recommended, especially due to the fact that the Argyle mine will be closing in the next 5 years or so, and that mine produces 90% of global supply. After that mine closes, only secondary markets will be available, meaning that demand will be holding steady as supply is completely diminished.