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Diamonds are forever - or are they?

By Finserv MARKETS - Aug 1,2019
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Diamonds are forever - or are they?

If you had to choose an object that symbolizes marriage, what would it be? Most probably, a gold ring with a glittering diamond on it. Diamonds have come to symbolise marriage due to their presumed longevity. People wish marriages to last a lifetime and which material could represent it better. Diamond is the hardest naturally occurring mineral on the Earth’s crust. The popularity of diamonds can also be credited to a slick marketing campaign, with the slogan, “A diamond is forever”, which was coined 1947 and has been used by the diamond miner and retailer De Beers ever since. The tagline changed public attitude towards diamonds and made it a symbol of long-lasting love.

For a large part of the 20th century, the business of diamonds was a monopoly, which distorted the price of the precious stone. To be clear, diamonds have symbolized royalty and luxury for a very long time. But it was not very popular with common people, unlike gold. The propagation of diamonds as prerequisites for engagement rings and their expensive nature led many people to use diamonds as an investment. The forever connotation with diamonds stuck and made people think that diamonds as an investment could be as rewarding as diamonds as jewellery. The important question is—do diamonds last forever—not just as jewellery, but as an investment.

Diamonds are forever - or are they?

Source: Lionel Ramsey on Slideplayer.com

Lack of measuring standards

Investments in precious gems and metals could be a rewarding exercise. Even though they don’t generate regular income like stocks, the appreciation in value is enticing. However, it is very important to possess genuine gems or metal to be able to sell it in the market. Gold is one of the most sought after investments. Besides, its value, it is very easy to differentiate between fake and genuine gold. A system of hallmarking and certification, along with other simple chemical reactions help in determining the purity of gold. The diamond industry does not have a uniform system of hallmarking and certification. Many jewellers provide their own certification, but there is a lack of standardized system. The value of a diamond is based on its clarity, cut, colour and carat weight, which makes it very tricky for an average investor to determine its worth. Even when a lab grades a diamond, it issues the certificate with a disclaimer that the actual colour and clarity may differ.

Pricing Opaqueness

The pricing mechanism of diamonds is not transparent and easily accessible. A good investment asset needs to have a transparent pricing system so that investors can easily liquidate the asset when required. For instance, gold prices can easily be accessed and checked through various sources. Digital gold, the newest form of gold investment, is highly transparent. Digital gold can be easily bought at Finserv MARKETS, and the price is prominently displayed on the portal. Diamonds retailing is vastly different. Diamond dealers generally buy diamonds at a discount as it is very difficult to ensure the stone’s genuineness. Typically, a dealer would buy a diamond at 75% of the prevailing market rate after subtracting making charges. This substantially erodes the value of the investment. The ambiguity and lack of standardization raise a question over the safety of the capital.

Presumed Toughness

Diamond is the hardest naturally occurring mineral is known to all. What is not known is that a diamond can fracture in the normal course of wear. The diamond derives its strength from the ultra-strong bonds between its atoms. Due to the unique structure of diamonds, there are certain points where the atoms are not tightly bonded. When a huge amount of force is applied to those points, it can fracture the diamond. Chipping of a diamond is not very common, but it cannot be ruled out.

Diamonds are forever - or are they?

Source: Nikhil Narayan on slideshare.com

Conclusion

The common notion around the durability of a diamond as an investment is largely a product of clever marketing. Except for the appreciation in price, a diamond does not have other features of a good investment. It is not a liquid, as not many people buy diamonds and their high prices make it more difficult to sell. In case a diamond gets chipped, you do not have many options. It will have to be recut, which will decrease its size and value. If investing in precious gems or metals is the aim, gold is a better option. Damage in gold jewellery can easily be rectified. The introduction of digital gold has made investing in the metal very easy. Digital gold prices are transparent and the buying process is very easy. You can buy digital gold from Finserv MARKETS in two easy steps.

“Finserv Markets, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere”!

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522