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Is it worth buying a diamond ring?

24 january 2022
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By Ali Gillani, Rough Diamond Evaluator at Trans Atlantic Gem Sales

My wife asked me to buy her a gold ring:

Wife: Can you buy me a gold ring as a present this year for my birthday?

Me: Of course, I will buy you a nice diamond ring on your birthday. 

Wife: I don’t want a diamond ring – I want a gold ring.

Me: But why, Honey?

Wife: I want to buy a gold ring as an investment.

Me: Buying a diamond ring can become an excellent investment if you buy a significant stone. 

Wife: Diamonds do not have an intrinsic value – I will not be able to resell it at the same price or more than the price I buy it; therefore, it is an investment with no deal. 

Me: Ok, I understand your point, but I am a diamond expert. I will buy an excellent Round Shape, a 1 Carat, F Color, VS clarity stone is a good investment product, and even the price will appreciate with time.

Wife: If I need or want to sell my ring at some point, where do I find the right market to sell it? Secondly, if I find a place to sell it, how do I find out the prevailing price of my diamond? Unlike Gold, which has a uniform price per gram worldwide, while selling my diamond, I must believe the price offered by the salesman because I have no relevant price reference for diamonds. 

Me: Ok, honey, I will buy a gold ring.

In the above conversation with my wife, you must have noticed that I failed to convince her to buy a diamond ring. The questions she has asked are straightforward but are directed to a significant problem – being a diamond trader, selling millions of dollars of rough diamonds all my life, I could not answer those simple questions asked by a consumer.

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Why was I not able to answer my wife?

Transparency of pricing at consumer level: 

Diamond Traders, Manufacturers, and Governing bodies emphasize traceability of origin information to specify the standards so that consumers know where the diamond they are buying originates from. The regulating bodies ensure that diamonds should not trade with illegitimate funding, not be used for money laundering, or that diamond mining is doing no harm and stressing the importance of due diligence. Still, NO ONE TALKS ABOUT THE TRANSPARENCY OF THE PRICING PROCESS FROM TRADERS TO RETAILERS TO THE CONSUMER LEVEL.

The clarity in the pricing process is the key to buying a diamond by a consumer for wealth preservation.

 

  1. Diamonds are not trading as a commodity:

Diamonds are a commodity, and their value can go up and down like any other commodity. Yet, there is no universal pricing index available for consumers to buy and sell diamonds.

For example, the transactional prices of gold and silver commodities are available in ounces, grams, and kilograms in the market tracker section of almost every newspaper or internet platform. Yet, there is no such information available for consumers who buy diamonds. 

There is a counter-argument about the fungibility problem in diamonds as a commodity. However, significant diamonds of higher grade could formalize to indicate the prevailing prices to the consumer or something along the lines of the Rapnet price list that is available only to traders should be open to the consumer for buying diamonds as a commodity and wealth preservation.

 2. Consumer-driven pricing system:

Today, the internet provides a piece of free-flowing information to everyone worldwide. Keeping the prices of any product secret is near to impossible. Social media and consumer feedbacks are challenging for a company to set prices on their own. The same formula applies to diamond trading as a commodity – let the consumer decide what diamond to purchase and set the price they are willing to pay for it. The retailers must focus on providing general education to the consumer to understand the characteristics specified on a certificate of a specific diamond that count towards its value.

Let the consumer analyze the characteristics of a diamond and match it with the price list to determine the actual value of a diamond. 

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How does a Layman Buy A Diamond?

Diamonds are a luxury product, and only the rich can keep them in their investment portfolio. This statement is valid to some extent, but diamonds can also be a part of an investment portfolio of an average earning layman. The question is what type of diamond to buy that can easily be resold with price appreciation? 

The most important thing is to buy a certified diamond – When I say certified, it means a certificate from an authentic lab like GIA & HRD – DO NOT BUY A DIAMOND WITH A CERTIFICATE PROVIDED BY A SHOP. 

Secondly, buy a Round brilliant diamond because it is the most popular diamond shape with more price appreciation at resale. Lastly, I don’t think the enormous size of the diamond is more valuable than the smaller one, and it is the most common mistake people make when they buy a diamond for wealth preservation. Always buy the best quality, which means an Excellent Cut grade with higher Color and Clarity. Any round-shaped diamond that ranges between 0.39 and 10+ carats with the best rate is an asset to add to your investment portfolio. 

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Conclusion:

One should understand that there will be a supply shortage in diamonds because rough diamonds are dominated by a handful of companies such as De Beers, Alrosa, and Rio-Tinto. They hold more than 60% of the global diamond mine production. Last year, we witnessed a shortage of polished diamonds, which plummeted consumer demand.

We need to improve price transparency from ‘Trader to Retailer to Consumer’ by introducing an easy-to-understand ‘Diamond Price Book For The Consumer’ for significant small-sized diamonds. A non-specialist can buy a diamond at a low price to sell at a higher price. We must give consumers a good reason to add a diamond to their investment portfolio, and diamonds should trade like any other commodity. 

Further to the conversation with my wife, explaining to her the value of buying a diamond for wealth preservation:

Me: I am sure now you understand why I suggested you buy a diamond ring.

Wife: All right, I know you fought tooth and nail to convince me to buy a diamond – but let’s try with a small one, half a carat round shape with an excellent cut.

Me: Let’s shop!

 

The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information without consulting a qualified professional adviser

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