When considering whether choosing to buy natural diamonds make for a sound investment, most seasoned investors would advise against it. This hesitation stems from several inherent challenges in the diamond market, such as unregulated pricing, the lack of a robust secondary market, and poor liquidity. Unlike commodities like gold or silver, diamonds are not traded on standardised exchanges, and transactions often occur privately, adding layers of complexity and risk.
One key issue is the subjective nature of diamond valuation. Prices are heavily influenced by the 4 Cs—carat weight, colour, clarity, and cut—which vary greatly among stones. Unlike metals, where uniform pricing models exist, the diamond market relies on price guides that are not universally standardised, leaving significant room for subjective interpretation. Furthermore, there is no universal price per carat; instead, values are shaped by the specific characteristics of each stone.
Historically, rough diamond prices were controlled by mining giants like De Beers, which managed supply to stabilise prices. However, the dismantling of the De Beers monopoly in 2001 led to a more fragmented industry. This change, combined with higher sales volumes and increased competition, has pressured natural diamond prices downward. The rise of popularity for people opting to buy lab grown diamonds has further eroded demand for natural stones, with the market shrinking by approximately 18% in recent years.
A notable disruptor since 2008 is the diverging trend in diamond value based on size. Larger, high-carat diamonds have appreciated in value, while smaller diamonds have stagnated or even depreciated. While this trend offers some hope for those investing in larger stones, it underscores the variability and unpredictability of diamond pricing.
From an investment perspective, diamonds also present logistical challenges. Storage and authentication can be problematic, with counterfeit concerns requiring professional verification. Furthermore, diamonds are subject to taxation, such as value-added tax (VAT) in the UK and EU, adding another layer of cost for potential investors. Unlike gold or silver, where trading is relatively straightforward, diamonds lack terminal markets and high liquidity, making them a less practical option for most investors.
That said, there are exceptions. Rare and historically significant diamonds sold at auctions can command exceptional prices and appreciate over time. These stones often carry unique provenance or cultural significance that adds intrinsic value beyond their physical attributes. Such diamonds, often considered luxury assets, fall into a different category and can offer strong returns to the right buyer.
Ultimately, while natural diamonds may hold allure for collectors or as personal treasures, they fall short as a practical investment vehicle. For those seeking stable returns, the lack of liquidity, transparency, and standardisation in the diamond market makes it a challenging asset class to navigate. Unless dealing with rare, auction-worthy stones, investors are better served exploring other commodities or financial instruments with greater stability and predictability.