14 Oct

A trillion reasons to buy pink diamonds

While it seems there is nothing but bad news when it comes to COVID-19 that gets any media attention, I for one am hopeful that this week marks a turning point of sorts for Australia, with New South Wales beginning a return (however slowly) to what might be termed normal.

We are certainly looking forward to being able to welcome clients of Australian Diamond Portfolio back to our offices in Sydney, as well as re-open our doors as it were to potential investors who may wish to learn more about the incredible investment opportunity pink diamonds offer today.

To that end, in this week’s market update, we look at an incredible news story that is gaining attention in the United States that highlights the very real risk that we see much higher inflation in the years ahead, and why this supports the investment case for pink diamonds.

We also touch on the just completed, last ever ‘Argyle Pink Diamond Tender’, the results from which we expect to hear about in the media within the next few weeks.

A mockup of a trillion dollar coin

A mockup of what a trillion dollar coin might look like. Credit: DonkeyHotey via Flickr.

One platinum coin, one trillion reasons to buy pink diamonds

In the United States, the government owes 28.8 trillion dollars to households, businesses and other governments, an amount equal to $228,000 for each and every American taxpayer.

As a share of economic output, the government debt to GDP ratio is over 125%, having risen from just 56% in the year 2000.

Despite the skyrocketing debt levels, politicians are keen to give the appearance that they are very closely watching the pennies they are spending and have always maintained a ‘debt ceiling’ – a level beyond which the United States government is not allowed to borrow.

Of course, the debt ceiling never ends up being high enough, so every few years lawmakers in Washington meet and agree to raise it, with this ceiling having gone up (never down) the better part of 100 times in the 20th century.

The ‘debt ceiling’ is in the news again as the United States is pushing right up against it again, and this time around, given how bitter and partisan politics has become, there are some concerns lawmakers won’t be able to agree to raise it this time.

Were that to happen, many argue the United States would effectively default on its obligations, which would cause chaos across the global economy.

While the obvious solution is that lawmakers do find a way to agree to raise the debt ceiling, a ‘wild-card’ solution is being proposed, which involves minting a USD $1 trillion coin made of platinum (click here if you want to read more on this story).

To be clear, the proposal isn’t that the coin would actually need USD $1 trillion worth of platinum in it (it would be a pretty big coin given platinum trades at about USD $1,000 per ounce), it’s simply that the United States Treasury can order a platinum coin be made, and stamp it with a USD $1 trillion face value.

Incredibly, from a legal perspective, this plan, were it enacted would be 100% above board, as the United States Treasury does have this authority.

While legally they can do it, the real question is whether they should, with the head of the United States Treasury noting that minting the platinum coin “is equivalent to asking the Federal Reserve to print money to cover deficits.”

Ironically, that’s exactly what the Federal Reserve has been doing, having printed trillions of dollars in the last year and a half.

As absurd as the situation is, as investors, it’s only natural that we try and position our portfolio to not only protect ourselves from inflation, but hopefully benefit from it.

Given that we are now in a scenario where the US economy relies directly on printed money, magic tricks in the form of assigning $1 trillion of value to a platinum coin, or some combination of the above, its clear that governments will stop at nothing to spend and spend and spend, ultimately aiming to generate higher levels of inflation to deal with excess debt in the global economy.

This is terrible for those with money sitting in a bank account, for investors in bonds, and in time it will also hurt property and share market investors too.

Discrete rare assets on the other hand, of which pink diamonds have no peer, are set to thrive in such an environment, which is one of the reasons we remain so bullish on their prospects going forward.

A diamond from a previous Argyle 'Signature Tender'.

A diamond from a previous Argyle ‘Signature Tender’.

Keep your eye out for this

In last week’s market update, we focused on a great long-form article in the ABC that reviewed the Argyle Diamond Mine, its history, the extreme rarity of the coloured diamonds unearthed there, and of course, the last ever Argyle Pink Diamonds Tender.

The Tender was completed last week on October 5, with the winning bidders already notified.

Our expectation is that the results from the Tender will be announced within the next week, with very significant price gains displayed.

We’d encourage you to keep your eyes out for that announcement, though we will of course share the news with our clients at Australian Diamond Portfolio as soon as it becomes available.

We’d also encourage anyone interested in adding pink diamonds to their portfolio right now to get in touch, as this news will only add to the bullish outlook toward these unique and rare assets in the market right now.

As always, we hope you’ve enjoyed this week’s edition of “In the Loupe” and look forward to any questions or comments you may have.


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