Saving up for diamonds like this one may feel like forever. But now you’ll have to wait a little longer.
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With mines in short supply and rising demand in emerging economies like India and China, the scene is set for a spike in prices.
That’s bad news for consumers. But for a new fund based in Hong Kong, it could be a lucrative money-spinner.
As Alan Landau, Director of Novel Diamond Fund, explains:
“The Novel Diamond Fund I is the first in a series of closed-end funds targeting the rare diamond market. Rare diamonds are diamonds generally with values of a million dollars or greater, this would primarily be colored diamonds. We feel very confident that we will be able to return in excess of 20% per year to our investors.”
The rising price of diamonds may put off some consumers, but for investors they have another important allure. When markets wobble, investors tend to head for assets they perceive to be safer, like gold or the Swiss franc. And now diamonds could be about to join them, as the new safe-haven asset.
As Landua says:
“Rare diamonds are actually a superior safe haven than gold. So you saw during the financial crisis, while gold fell in excess of 30%, the diamond market generally fell less than 20% and rare diamonds fell less than 10%. In some cases the very rare diamonds, multi-million-dollar diamonds, barely fell at all.”
But critics are quick to note the negatives.
While one ounce of gold is priced as one ounce of gold, for diamonds, the value is the eye of the beholder.
Ed Sterk from BMO Capital Markets sounds a note of caution, saying:
“Even if you’re buying into a fund where in theory you have a much broader spectrum of, or exposure to a much broader spectrum of, diamonds, how you value the assets of that fund is something that is extremely difficult. So you can take five different diamonds, show them one diamond, and they’ll give you five different valuations for it and the range can be extremely broad.”
But the Novel Diamond Fund says it’s already had positive reception. And they’ll be hoping diamonds take over… as the investor’s new best friend.
Bottom line: Gold, silver and Swiss francs are well-known alternatives for investors when markets are in turmoil. But now diamonds could be joining the list.