Diamonds are precious because they’re rare. The rarer they become, the more valued they will be.
Diamond jewellery, such as engagement rings, hasn’t always proved the best investment! If you’re unfortunate to have to try to sell one of these rings, many will tell you they can end up far from a lucrative investment.
But there are some people out there who have made money through investing in diamonds: But what do you buy, and how do you sell?
In rough economic climates, diamonds can act as a hedge against inflation and are used as a safe haven asset because they can be stored physically in a vault, unlike other invisible and volatile stocks.
The Australian Diamond Portfolio said not all diamonds were considered investment opportunities. Those looking to invest in a diamond must invest in something rare and in demand to ensure there’ll be a robust resale market when they want to sell.
The Market Herald has amassed commentary from experts in the field of diamond mining, diamond buying and diamond evaluating, to explain important ‘how-tos’ for those interested in diamond investing.
What to look for when investing in diamonds
The first step to investing in diamonds is to make sure you invest in a gem that will appreciate over time, and the best way to do this can be through buying coloured diamonds.
Dean Knoote has worked with diamonds for more than 25 years. He shared experiences with The Market Herald, explaining the skills he’s required to buy diamonds for renowned individuals, including football players and A-list stars – including Robert DeNiro.
Coloured diamonds
After more than 40 years of production, Western Australia lost its place as one of the top global diamond producers when the Argyle mine run by Rio Tinto (ASX:RIO) closed in 2020.
The mines’ closure meant an end to supplies of a significant portion of the world’s Argyle pink and red diamonds and saw Australia’s diamond reserves drop by 45 per cent.
There have been no pink diamond mines discovered anywhere else.
“Argyle Mine closed in 2020, did this automatically make pink diamonds rarer? The answer is ‘yes’,” Mr Knoote said.
“If another pink diamond mine opened up, would this drive down the price of these diamonds?
“It’s hard to imagine another Argyle just happening along – even if it did – the data suggests there’s a 14-year journey before production.”
Pink diamonds were already extremely rare – accounting for 0.1 per cent of all gems discovered at Argyle, and yet, that mine hosted 90 per cent of the world’s pink diamond supply.
Once the mine closed, they became even rarer, and their value has crept higher ever since. Australian Pink Diamond Investments has recorded a consistent increase of 28 per cent each year for coloured diamonds since the closure of the Argyle mine.
The Australian Pink Diamond Exchange values diamond prices according to the intensity of their colour, and it states that today fancy pink diamonds tend to range from $10,000 to $30,000, while intense pink-coloured diamonds can reach $1,000,000 per carat.
“For me, colour is the second most important, and I prefer searching in the ‘F’ or better section… certainly pink, purplish pink and blue diamonds would be a good investment, however, this depends on the source,” Mr Knoote said.
Watch ‘the source’
What Mr Knoote meant by ‘the source’, relates to modern-day ESG (Environmental, Social and Corporate Governance) values – the expectation that diamonds be ethically sourced and not mined by people suffering under poor working conditions.
As highlighted by the International Gem Society, there were loopholes in the certification process that enabled some diamonds obtained through unethical means to receive valuation and certification, entering the market under the radar.
Reputable jewellers should provide precise information and be knowledgeable of the diamond’s region of origin. They should provide proper certifications and documentation.
There have been documented human rights violations in diamond mines in countries including Angola, Zimbabwe and The Democratic Republic of Congo.
Colours of desire
Purple diamonds are growing in popularity and can be found in countries such as Russia, with the occasional stone unearthed in James Bay, Canada. However, from January 2024, G7 countries have banned Russian rough diamond imports.
An ASX-listed company working in north-western Canada is Burgundy Diamond Mines (ASX:BDM). It bought the Ekati mine in 2023, in a $36 million cash and scrip deal.
The mine is in northwestern Canada, where the diamonds are mostly white, with some yellows and pinks in the mix. It polishes and cuts its diamonds in Perth, Western Australia.
Fancy yellow diamonds are becoming increasingly popular, despite them being less rare than other colours. The price still varies significantly from a few thousand dollars to several hundred thousand – or even a million dollars – for the best stones.
According to Pink Kimberley Diamonds, 6-7 carat pink diamonds have surged in value by 544 per cent over the past 12 years. Although, the most popular carat size is between 0.5 and one carat.
How do you buy diamonds for investment?
When it comes to buying a diamond, a jeweller is an obvious choice, but investors can reach out to diamond dealers and buyers (brokers) who attend private auctions to buy diamonds directly from mines.
Perth-based rough diamond valuer and gemologist, Stewart Cole, said cost and exclusivity were a main driver for using a diamond broker.
“We go directly to the manufacturer as opposed to going to a jewellery manufacturer because it’s just another cost,” he said.
“A jeweller – because they have such large overheads, like rent, electricity, staff, insurance – there’s a lot that they have to cover before they actually make any money.
“A broker tends not to have those costs because he’s dealing directly with the buyer, gets the money upfront and a small commission.”
Those seeking out a diamond broker aren’t always looking for an expensive diamond investment, but they’re wanting a gem that’s exclusive and unique to the market, rather than something that’s produced in bulk by a chain jewellery store.
“A broker won’t go into those areas, because it’s not that economic,” Mr Cole said.
But he said diamonds can gain value if set by luxury jewellers, such as Tiffany and Co. In those cases, a diamond may be priced beyond its quality and true worth.
Where can you buy investment diamonds?
Auctions serve the largest and most diverse customer base, ranging from diamond traders to jewellery manufacturers and retailers. Upcoming auctions can be located from sites like Debeers Group, the world’s leading diamond company.
Mr Knoote said industry trade shows were held multiple times each year.
“Hong Kong hosts several trade fairs each year attracting manufacturers of not only diamonds but all manners of coloured stones, pearls and jewellery covering the entire range from the most basic to unbelievable,” he said.
Just recently, Australian ASX player, Lucapa Diamond Company (ASX:LOM) sold four diamonds extracted from its Lulo Alluvial mine in Angola for $26 million at a private invitation-only tender. The diamonds were priced at $28,000 per carat.
Investing in Australian diamond miners
If stocks are more your thing, you can invest at the very beginning of the diamond life-cycle. On the ASX and operating in Australia there is Lucapa Diamond Company (ASX:LOM) as mentioned, and Gibb River Diamonds (ASX:GIB).
Gibb River is the 100 per cent owner of the Ellendale diamond project located in the West Kimberley region of Western Australia. While it was mined between 2002 to 2015, it delivered about 1.3 million carats. It supplied about half the world’s Fancy Yellow diamonds, with some of the best quality purchased under an off-take agreement with Tiffany and Co.
The former owner the Kimberley Diamond Company fell into liquidation. Gibb River took ownership in 2023 and is working to first mine the tailing resource. Permitting studies are underway.
Lucapa has the Merlin diamond mine 720 kilometres east of Darwin, which it paid $8.5 million for in 2021. That mine has been out of service since 2016. Former owner Joseph Gutnick fell bankrupt after an unrelated $57 million legal action by Indian farmers over a failed phosphate deal.
Lucapa’s looking to restart mining at Merlin, but it recently announced it was pausing the feasibility study to focus on smaller-scale, lower-cost development.
Lucapa also owns profitable mines in Africa and Angola. In early November, the company unearthed the second-largest diamond ever recovered from its Lulo alluvial mine in Angola, a 235-carat Type IIa diamond.
Why invest in a diamond mining company?
Rod Criddle, a diamond valuer working for Australian mining companies including LOM and GIB, said investing in a diamond company could be interesting and worthwhile.
“Unlike most mining commodities where the grade tends to be the main factor, with diamonds, grade along with the size distribution, quality and colour are all important,” Mr Criddle said.
“Diamonds aren’t as rare as many think but finding a profitable diamond source pipe is rare, most diamonds form around 200 kilometres below the earth’s surface and were brought to the surface via Kimberlite or Lamproite pipes millions of years ago, many of these pipes are either worn away or covered by sediment, these pipes are difficult to find and most do not contain economic diamond reserves.”
Gibb River Diamonds Executive Chairman Jim Richards said the company’s ‘fancy yellow’ diamond stockpiles were ‘one of a kind’ and he was confident the Ellendale project had great potential for the future.
“The Ellendale fancy yellow stones are an exclusive Australian quality diamond, conflict-free, with a rare colour unique to Ellendale which only varies in intensity,” he said.
“The Argyle diamonds (mine closure) example shows there is a large market both domestically and overseas for quality Australian Kimberley diamonds, which we would seek to tap into and enhance once we are in production.”
How can you sell your diamond investment?
Rare pink diamonds stand out as the highly liquid and sophisticated segment within the realm of collectible assets, as highlighted by The Australian Diamond Portfolio.
These diamonds possess the unique advantage of being discreetly and legally transportable, facilitating global sales in major cities. The market boasts a diverse array of participants, ranging from collectors and investors to dealers and discerning jewellery buyers, such as Mr Knoote.
However, determining the opportune moment to sell these diamonds can pose a challenge. Like the real estate market, finding an ideal buyer may require a patient approach and an awareness of market dynamics.
The diamond market is considered decentralised, as there is not one exchange or market where most transactions take place.
Mr Cole emphasised two ways you could sell a diamond investment once it had appreciated. First, he said you must get the diamond valued, and this can be achieved through a simple Google search to find an accredited diamond valuer.
Once you know the value, you can try selling through Gumtree, Facebook Marketplace and pawn shops.
“If it’s a really expensive diamond, then you could go to the auction houses, depending on its size and value,” he explained.
“If it’s a Fabergé, you would take it to Europe and sell it in the market there, If it was a Japanese incarnate you would go to Hong Kong, so you would have to know what it is and where it has come from – like any other antique.”
Certification holds the key to value safety
When a diamond is certified, it is sold with a certificate of authenticity, which is only granted once evaluated, verified, and validated by a gemologist or reputable analyst.
If a diamond is sold uncertified, there is no way to know its true quality and whether the price paid for it is too high or too low. Therefore, reselling the diamond would prove extremely difficult.
“I always find a diamond that is graded by the GIA (Gemological Institution of America),” Mr Knoote said.
Mr Knoote recommended certification for a variety of reasons, including to ensure authenticity and make sure buyers aren’t sold a cheap, seemingly identical, lab-grown diamond.
“The scramble to get aboard the lab-grown scene is a real reason to ensure your naturally mined diamond comes with a certificate of authentication and clearly states the word ‘natural’,” he said.
“Most high-quality diamonds weighing 0.50ct and above should be certified.”
Shine bright like a diamond
The experts agree diamond investing requires a strategic approach: Focusing on colour; exploring avenues for purchase; considering the mines they’ve hailed from; and, ensuring proper certification.
If investors navigate these processes well, they can unlock a unique and lucrative appreciating investment.
Like gold, these luminous crystals are immune to bankruptcy, exempt from taxes, and their pricing is determined independently through certification. They can function as a safeguard against inflation, can be easily stored, are more or less indestructible, and can have generational value. Over time, they accrue wealth as cherished family heirlooms.
However, crucially, adherence to rigorous certification standards, exemplified by reputable organisations like the Gemological Institute of America (GIA), is the way to ensure the authenticity and quality of the investment.