30 Oct 2019

Diamond Demand Growing Around the Globe

Last week, the Australian Financial Review ran a great story on the strong demand being seen for Argyle pink diamonds today, and the bullish outlook for the price of these diamonds in the years ahead.

The headline you can see below, taken from the article in the Financial Review captures the mood neatly. Clearly, the release of the 2019 Argyle tender, and the pending closure of the Argyle Mine in 2020, which is of course the only steady source of pink diamond supply in the world, is reinforcing the true scarcity of this unique asset class in the minds of investors, with demand responding accordingly.

Jewellers already nostalgic for pink diamonds - Financial Review headline

More and more people are ‘getting it’ as the article says, and we for one couldn’t agree more.

Crucially, even though the mine is located in Australia, the investment case is a truly global phenomenon. Evidence of this is seen in the fact that the article that appeared in the Financial Review was also run by Bloomberg, by the Financial Post, the National, Financial Advisor Magazine as well as a handful of other publications.

Most importantly for investors like yourself, the closure of the Argyle Mine, and the reawakening of investor demand worldwide has the potential to push diamond prices much higher in the years to come. This was a theme we discussed in length in our recent special report into the closure of the Argyle Diamond Mine, and the likely implications it would have on the market in the next decade.

At Australian Diamond Portfolio, we are not alone in seeing a positive price outlook for pink diamonds in the years ahead, and the potential for the closure of Argyle to act as a catalyst for that price rally.

Instead it’s a theme that seems to be gaining momentum in the markets at present, with more and more commentators discussing the potential that this unique asset class offers investors every day.

The article itself quotes two credible sources, RBC Capital Markets and Panmure Gordon, a British merchant bank with an over 140-year history, who between them noted that the closure of the Argyle mine could “kick-start” prices for pink coloured diamonds.

This would set the investment landscape up nicely as we head toward 2020, with record low interest rates around the globe naturally reigniting interest in assets like pink coloured diamonds.

Demand Strength to Continue for Years

Some people might be forgiven for thinking that the closure of the Argyle Mine will lead to a temporary demand boost, with things stabilising after a year or so.

We wouldn’t be so sure, especially in an environment of negative bond yields, money printing and geopolitical instability. These are long-term issues that will likely take at least a decade to resolve, if not longer, and they will help drive demand for hard tangible assets throughout this period.

And that demand will come from investors of all sizes, from those looking to diversify their portfolio with pink diamonds from as little as AUD $20,000 (which is typically seen as an entry level for clients at Australian Diamond Portfolio), through to SMSF trustees who might put $100,000-$250,000 into this asset class.

Of course, we will also see continued demand from ultra-high net-worth investors, including the lucky buyer of the 18.96 carat Pink Legacy, which the article points out sold for $50 million when Christie’s auctioned it in 2018.

The 18.96 carat Pink Legacy. Image © Christie's 2019.

The 18.96 carat Pink Legacy. Image © Christie’s 2019.

Whilst stones of such value are obviously out of reach for nearly all investors, the headlines they bring are positive for the entire pink market, and all investors in it, as it creates an excitement toward investing in this asset class that impacts diamonds at more modest price points.

Going back to the sustainability of the increase in demand that we are seeing, and whilst in theory it could dry up at some stage, there is no reason to expect that this will happen at any point in the years to come.

This was a point specifically reinforced by Olya Linde, a partner at Bain and Company in Moscow, who noted that there was “no reason to think the luxury industry would lose its appetite for pink stones, either to wear as jewellery or as an investment piece”.

That investment piece, and explaining the uniquely beneficial role that pink diamonds can play in a portfolio is obviously where we at Australian Diamond Portfolio come in, helping clients gain access to this unique asset class.

Indeed, the growth of pinks diamonds as an investment in Australia was specifically mentioned in the article, with Larry West of LJ West Diamonds in New York noting that; “in Australia, they have pink diamonds in peoples’ portfolios for their retirement funds.”

West is specifically referring to SMSF trustees there, which is a market segment we do a lot of work with at Australian Diamond Portfolio, and one that we are happy to serve with our end-to-end investment solutions.

Good Governance is Critical

Another factor that will help provide continued strength for Argyle pink diamonds even after the closure of the mine is the governance that surrounds the pink diamonds that are produced there, with quality controls that are unmatched in the diamond market.

This governance is one of the reasons Argyle pink diamonds can command a premium price in the market relative to the few pink diamonds that are produced elsewhere, remembering that Argyle mine produces over 90% of the world’s supply of pink diamonds.

That governance is particularly important to us at Australian Diamond Portfolio and is one of the reasons that we get all the diamonds that we source for clients checked and verified by the Diamond Certification Laboratory of Australia (DCLA), one of the world’s foremost independent diamond grading and certification laboratories, and a partner we are proud to work with at Australia Diamond Portfolio.

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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