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Although diamonds have been around for centuries and shown consistent year on year growth the more dramatic price increases we have seen in recent years is in part due to the changing economic times and the supply and demand dynamics of the market. The globalisation of the world economy has resulted in increased wealth and further demand for diamonds. Oil rich countries and rapidly growing countries such as Brazil, Russia, India and China, are now competing for the scarce resources of the world and hence pushing up commodity prices.

Fancy coloured diamonds are very rare and are only found in a few locations around the World, what is rare will become rarer, and much more valuable. 90% of diamonds that are found are only industrial quality and of the 10% that remain less than 1 in 10,000 are fancy coloured.

Consumer demand is likely to be driven particularly by emerging markets, including China and India with combined diamond consumption to reach 36% of global total, surpassing the USA to become the major importers”

Bain and Co Report

Naturally occurring coloured diamonds not only put one in awe of their beauty but they are one of the most valuable gemstones on Earth. Once considered strange, these diamonds are now extremely sought after by collectors, celebrities and the wealthy.

Many of the world’s biggest and mature diamond mines are currently reaching the end of their lifespan. Diminishing supply from these mines and increasing demand from the whole world means that prices are rising fast for these natural fancy coloured diamonds. This is ably demonstrated just by looking at historical wholesale, auction and retail prices over the years.

Production at Rio Tinto’s Argyle mine in Western Australia’s Kimberley region will soon come to an end as its rare deposits of pink diamonds approach exhaustion. Sky News reports that the mine, which accounts for over 90% of the global supply of pink diamonds, will be largely depleted. This mine has announced that it will cease production in 2018/19.

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According to British jewellery historian Vivienne Becker the closure of the Argyle mine’s production will mark the end of an era for precious gemstones. Becker says the pink diamonds are a “delightful freak of nature” whose peculiar hue and scarcity draw a hefty premium from high-end consumers, and that in future they will “emerge as the new Faberge egg”, the thing jewellery myths are made of. “The value of rarity is the most priceless factor…in the world of jewellery today and as supply tightens, price will be driven up,” said Ms. Becker.Although the Argyle Diamond mine supplies nearly all of the worlds pink diamonds (over 90%); a whole years production of stones of over 0.5 of a carat would fit into the palm of your hand.

Economic Good Sense

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Perhaps more important than any other economic factor is the basic principal of supply and demand. The supply of the world’s diamonds is finite, even though diamond production has grown over the years; diamonds are still a natural resource with a limited supply. “Global demand for diamonds will probably outstrip supply by 7 million carats in 2016, compared with a shortage of 1 million carats this year,” says Vladimir Sergievskiy an analyst at Moscow based Finam Investments. Investment into natural fancy coloured diamonds offers appreciating wealth with a superb track record in a proven and diminishing asset.

This tangible investment provides an inflation hedge unlike gold and oil.  Diamonds have not suffered price volatility and are price independent, not linked to the stock or bonds market and are unaffected by fluctuations in real estate prices, inflations or recessions.

The lack of new diamond mine discoveries, particularly in the natural fancy colours is helping to push the best of these colours to record prices.

  • In 2003, a Fancy Intense Pink 3.58-carat diamond was sold for USD115,000 per carat
  • In 2007, a Fancy Intense Pink 3.86-carat diamond was sold for USD390,000 per carat
  • In 2010, a Fancy Intense Pink 4.59-carat diamond was sold for  USD625,000 per carat
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