'You could pay double buying diamonds through a jeweller': How to invest in a gem and beat the mark-up
If you are looking for a rock-solid investment, be wary of the most impressive rock of all – a diamond.
While the precious stone may be a girl's best friend, as an alternative investment diamonds should be treated with caution.
Diamond trading is an unregulated market that is hard to crack for private investors. Even insiders often disagree on specific qualities and values, partly because no two diamonds are exactly the same.
Despite being seen as an expensive luxury, the value of the best one-carat polished diamonds fell 12.5 per cent last year, according to American-based diamond industry researcher Rapaport. But over the past decade they have risen by 53 per cent.
Investing in diamonds isn't straight forward due to the unregulated market
Vashi Dominguez, chief executive of diamond trading website DiamondManufacturers, says: 'Unless you are an expert, you will lose money by purchasing through a jeweller.
'They can charge at least double what diamonds may cost on the wholesale market. The door is firmly closed to any industry outsiders.'
Dominguez believes the best way to invest in the gem market is through a diamond trader. He recommends visiting them and viewing their diamonds before taking the plunge. The London Diamond Bourse trading centre in Hatton Garden, Central London, offers a vetting service to verify the quality of its trading members.
Dominguez says anyone investing in diamonds should buy at least £5,000 worth and keep them for five years.
Harry Levy, owner of Levy Gems in Central London and chairman of the London Diamond Bourse, says: ‘Make sure the diamonds have a laboratory grading certificate. Check with the Bourse if in any doubt about diamonds or guarantees. Unfortunately, some certificates are worthless.’
A FEW GEMS ABOUT THE PRECIOUS STONE
Most diamonds are found in kimberlite – a hard volcanic rock. They were created under huge pressure up to 120 miles underground more than a billion years ago and are carbon minerals turned into the hardest naturally occurring substance.
- The biggest diamond ever found was a 3,106.75-carat (621.35g) ‘Cullinan’ mined in South Africa in 1905. It was cut into seven major stones and 96 smaller ones. The largest stones were set into a Sceptre (530.2-carat) and the Imperial State Crown (317.4-carat) for the monarch King Edward VII.
- Artist Damien Hirst made a ‘For the Love of God’ human skull platinum sculpture encrusted with 8,601 diamonds in 2007. It is valued at £50 million.
- A rare pink diamond smashed the world record for a jewel sold at auction when it went for £29 million at Sotheby’s in November 2010. The 24.78-carat ‘Graff Pink’ was bought by British billionaire jeweller Laurence Graff.
Investors also need to factor in the cost of security – possibly keeping gems in a piece of jewellery to enjoy until it is time to sell. Diamonds should be a specified item on home and contents insurance.
Diamonds bought in Britain are subject to 20 per cent VAT. If you make a gain on the investment – and the diamonds are worth at least £6,000 – there is a minimum 18 per cent capital gains tax above the £10,600 annual exemption.
Exposure to diamonds is relatively limited. Baring Global Resources Fund, for example, has less than ten per cent invested in each of the mining companies Rio Tinto and BHP Billiton, and these also have only a small interest in diamonds.
Investors might also be tempted to invest in a stock market-listed firm that has interests in diamonds as well as other businesses.
De Beers is the biggest producer. It is 85 per cent owned by Anglo American, which is listed in London. De Beers accounts for about five per cent of Anglo’s operating profits. There are also two smaller London-listed firms, Petra Diamonds and Gem Diamonds, with interests in diamond mining.
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