Diamond investors bid high

PUBLISHED : Monday, 21 November, 2011, 12:00am
UPDATED : Monday, 21 November, 2011, 12:00am


Economic slumps usually prompt investors to reconsider their options, and the global financial crisis has proved no exception to the rule.

The precious jewellery market is enjoying a boom as more people look to alternative sources of investment to protect themselves from rocky financial times.

Top-quality diamonds are leading the trend. A growing community of investors and collectors is keeping momentum strong, with sales continuing to set new records.

Last year auction houses Christie's and Sotheby's both topped previous records for jewellery with sales fetching US$429 million and US$405 million respectively - with Christie's Hong Kong the leading location for jewellery.

The trend is continuing. In the first half of this year, Christie's achieved 30 per cent higher prices than the same period last year, with HK$695.7 million setting a record for the most valuable jewellery auctioned in Asia. The highlight was the sale of a pair of D-colour Golconda diamonds that fetched a record HK$1,555,730 (US$200,000) per carat.

And at Sotheby's Hong Kong jewellery auction last month, a new record was set for a fancy vivid blue diamond, which fetched HK$13,154,739 per carat and sold for a total of HK$79 million.

By all accounts, high-quality gems are proving an attractive source of investment. Experts conclude that more people believe jewellery provides a safer alternative to traditional investment in paper stocks or even bricks and mortar.

'We see an increase in the number of people bidding with every auction,' says Diana Chang, jewellery specialist at Bonhams Hong Kong, whose auction of fine jewellery on Sunday is estimated to be valued at about HK$63 million.

A heart-shaped diamond necklace weighing 55.29 carats and with an estimated price in excess of HK$2.5 million is expected to be one of the auction's highlights.

According to Chang, buyers cover all demographics and ages, with younger men and women willing to bid high for exceptional one-off pieces. 'More suppliers want to sell through auctions and an increasing number of buyers understand they can get items that are worth collecting when they buy [at auction],' she says, adding that their value reflects the buyers' interest in the items.

Diamonds and coloured diamonds remain all-time favourites but other gems in demand include padparadscha sapphire, pink tourmaline and tanzanite, Chang says.

Andrew Coxon, president of the De Beers Institute of Diamonds Executive, says recent auction results indicate that diamonds remain fairly immune from financial gyrations and have the bonus of being entirely portable.

'Fancy colours are art but also high-end white diamonds become art when they are from a respected source, and they are exceptionally beautiful to the eye,' he says, adding that high-end jewellery prices have doubled in five years.

The demand for fancy coloured diamonds far outweighs supply. The rising interest from buyers, particularly from Asia, has sent prices rocketing faster than even prices for larger D-colour, internally flawless quality diamonds above three carats that were traditionally the best investment, says Coxon.

Arnaud Bastien, general manager of Graff Diamonds for Greater China, says history has proved that diamonds can offer a good return. 'Diamonds are usually more stable than any other commodity during crisis time.'

According to Bastien, this trend will strengthen and will probably have a deep impact on the luxury market as consumers exercise caution before buying, and only then if they believe they are getting value for money.

'People are becoming more educated and are seeking prime stones. Rare pieces will become rarer and prices will follow the demand. Exceptional goods will reach new levels,' he says.

Experts say that, as with any good investment, the investor needs to understand the commodity. 'Diamonds are rare and some diamonds are extremely rare,' says Bastien. '[Rare] diamonds are treasures given by Mother Nature. The human hand is just here to cut and polish it, but if you do not have a good rough diamond you cannot get a beautiful stone. Once you understand that diamonds are unique and that no other industry can offer a similar product, you know that this is a good investment.'

Buying jewellery should be a long-term investment, according to Coxon. Owners usually form an emotional attachment to exquisite gems and jewellery, which become treasured and worn over a lifetime before being passed on to the next generation.

'Part of the joy and profit of owning high-end diamond jewellery is the pleasure of wearing it and the security of owning something precious that remains close to you at all times,' says Coxon. 'It is as good as an investment in art if you buy for your own pleasure as well as for capital appreciation - but it must be beautiful first of all.'

Investors should buy jewellery they are attracted to and will wear. 'Always choose with your heart,' Coxon says, adding that it is like buying for the future but that you can enjoy the benefit today.

'The individual fire, life and brilliance of a diamond that excites each person are individual, which is why we recommend that people look at as many diamonds as they can. There is always one that you can't leave behind. We often say that a diamond chooses you.'

Diamonds that are three carats or more are recommended because this is the minimum weight auction houses such as Christie's or Sotheby's would be interested in.

Coxon warns customers to never buy a diamond on paper based on its grading report because they contain many aspects that are not documented, 'Beauty and visual excitement are all part of the added value of jewellery,' he says.

About one-third of diamonds are slightly dull and lacking in brightness, says Coxon, who compares them to the differences between mountain and tap water. 'Both are clear according to the laboratory report but only one is bright and beautiful.'