Simmering interest in rare pink diamonds as an investment will be spotlighted tonight as arguably the rarest ever cut graces the auction room floor.
The Pink Star — which has received global attention ever since the rough diamond was discovered by De Beers in South Africa in 1999 — is set to be auctioned off by Sotheby’s with expectations it will blow the record price for a diamond of $US57.5 million ($75.6m) out of the water.
The renowned auction house is hopeful a second Hong Kong auction will prove more fruitful than the first in 2013, when a sale of $US83.2m came unstuck as the buyer — diamond cutter Isaac Wolf — failed to stump up the requisite funding.
It comes at an intriguing time for the diamond market as the low end struggles against the rise of man-made alternatives and the top end benefits from the swelling ranks of global millionaires and billionaires.
Indeed, typical diamond prices have essentially flatlined over the past decade, while rare pinks have offered appreciation the envy of most asset classes.
At its 2016 pink diamonds tender in October, Rio Tinto — which controls more than 90 per cent of pink diamond supply through its Argyle mine in Western Australia — booked a “record result” as it hived off 63 of its best finds for the year.
The greatest interest for Rio’s pink diamonds came from US collectors amid a global auction that saw bidders from 10 countries win out, with the final numbers pointing to an average valuation gain of more than 300 per cent over the past 15 years, or about 10 per cent a year.
“The market fundamentals for pink diamonds — strong demand as a result of extremely limited supply — continue to support their significant value appreciation,” Rio Tinto’s Josephine Johnson said at the time.
The scarcity of “pinks” is likely to become more apparent from 2021, when Rio’s Argyle mine is expected to close.
Despite diamond sellers noting rising interest, especially in pink diamonds, coloured remain a niche market.
Most people — including SMSF investors — are simply not well-versed enough in the market to fully comprehend it. There are thousands of diamond categories out there to confound investors as it suffers from a lack of homogeneity in comparison to other commodities.
Doug Turek, principal investor at money management firm Professional Wealth — and a specialist in asset allocation — says he has not noted rising interest in diamonds among his high-net-worth clientele, with his one discussion of diamonds in more than a decade of practice related to talk of them as an inherited asset.
In many regards the coloured versions of diamonds are classed alongside art and collectables, with hopes for substantial appreciation over the course of time. In common with art, it can’t be showcased if bought as an investment in a self-managed super fund due to the sole purpose test.
Another notable issue is a potential lack of liquidity (the ability to buy and sell easily) at the top end, while the generic diamond market has lagged for much of this century.
Turek says: “A lack of price appreciation (has weighed on interest) and I think the fundamental supply-demand characteristics of diamonds in general changed when the power of De Beers weakened and they were not able to control price as they used to.”
However, in Turek’s view, an argument can be made for diamonds as a non-investment store of value.
“The more people worry about legislative risk and increasing taxes on super, for instance, it is possible that people will look to these very portable, easy to store assets,” he says.
The Pink Star is easy enough to store, but won’t be so easy to acquire given a price that will reflect the attention to detail in a two- year cutting process that turned a 132.5 carat rough cut into the largest internally flawless, “fancy vivid” pink diamond ever graded at 59.6 carats.
Sotheby’s ultimately had to stump up $US60m to buy the diamond after the 2013 deal broke down as part of a floor price agreement with the vendor.
It could turn into a handy, if accidental, investment as the group appears confident of an even healthier return than the $US72m valuation on its books.