20 Nov 2019

Diamond Demand Rising as we head into Christmas

Over the last couple of months, there has been a notable uptick in demand from our clients at Australian Diamond Portfolio. Multiple tailwinds have driven this demand, including the release of the penultimate Argyle Pink Diamonds Tender in July this year, and our special report into the closure of the Argyle Diamond Mine, which looked at its likely impact on prices for pink diamonds in years to come.

Interest rate cuts by the RBA have also been an important driver, with investors realising there is no real way to preserve, let alone grow real wealth through traditional savings anymore.

By and large, clients are looking for pink diamonds with significant vibrance and rich, deep colouring, as those are the stones that offer the best performance potential in the years ahead.

Clients are also wisely (in our view) steering clear of colourless diamonds, and even other coloured diamonds like yellow diamonds, as these types of stones do not offer the unique supply/demand profile, nor the investment potential that pink diamonds can provide.

As our widely read Pink Diamond Investment Guide highlights, whilst; “In the colourless diamond world, buyers pursue ‘less’: less colour, fewer inclusions and little if no fluorescence, to the point where the ‘void’ symbolises perfection…….In sharp contrast, in the fancy colour diamond sphere, we pursue ‘more’: more colour, more saturation, brighter tone and more character.”

Argyle Tender Stone

“In the fancy colour diamond sphere, we pursue ‘more’: more colour, more saturation, brighter tone and more character.” – Australian Diamond Portfolio’s Pink Diamond Investment Guide. Image © Rio Tinto 2019.

Huesaturation, and tone: Those are three of the key characteristics we look for when assessing which pink diamonds we should present to our clients as investment opportunities.

Given the tailwinds, we expect demand will remain strong over the final few weeks of 2019, with Australian Diamond Portfolio shutting down from Monday the 23rd December to Monday 20th January 2020.

Australian Economy Continues to Falter

In last week’s report, we noted that the Australian dollar, which has risen in the last couple of months, would come back under pressure soon enough, and that it will likely head much lower in the years ahead.

Evidence of why we believe that to be the case was delivered last week, with the shock (to most mainstream commentators) news that the Australian economy shed almost 20,000 jobs in September.

The end result of this is that the unemployment rate rose back to 5.3%, whilst the underemployment rate rose even further, now sitting at 8.5%, whilst wage growth is also back near all-time lows of just 2.2% per annum.

As economist Stephen Koukoulas, writing in Yahoo Finance noted; “There are no secrets why the labour market is so slack – it’s the absence of solid, sustained economic growth.

With GDP stuck in the mud well below 3 per cent for many years (it was actually a pitiful 1.4 per cent in the most recent data), firms are not strong enough to hire more workers or to give them a decent pay rise.

If businesses were making money, expanding and meeting new orders in a strong economy, they would be hiring strongly, adding to workers’ hours and having to pay decent pay increases to attract and retain talent.”

Unfortunately, things are likely to get worse, not better, in the months ahead, with another economist, Callam Pickering, noting that: “The key to the labour market going forward is whether the economy can turn around, and what we’ve seen in the September quarter and early indications for the December quarter is that economic growth has remained pretty weak, so I think these weaker employment figures are here to stay, at least for the next three to six months.”

Pickering went on to say that “Other measures of labour market conditions, such as job vacancies and ads, point in that direction. They actually suggest that unemployment is set to drift a little higher,” and that “One of the things we tend to see as the economy deteriorates is that full-time workers become part-time workers. They go from working 35 hours a week to 30, or maybe 25 hours a week.”

This trend was evident in the last jobs report, which showed total hours worked in all jobs declined over the month, a final sign of how bad the employment picture in Australia really is.

The end result of this is simple:

  • Consumers will continue to cut back, limiting earnings for companies, which will put pressure on the stock market.
  • The RBA will have no choice but to keep cutting interest rates, and will also likely commence money printing in 2020.
  • The AUD will continue to be under pressure, with more falls likely.
AUD and USD

The AUD will continue to be under pressure, with more falls likely.

It is those last two points that are most relevant for our clients at Australian Diamond Portfolio. The interest they earn on the money that have in the bank, which is already losing value in real terms, will only continue to decline.

More importantly, the value of the Australian dollar itself will likely continue to lose value against other currencies, and especially against rare tangible investments like pink diamonds.

Outlook for 2020

Our final “In the Loupe” for 2019 will be sent on the week commencing 2nd December, with a focus on the outlook for diamond prices next year, and investment markets more generally.

If there are particular questions that you would like us to answer in that update, please do email us at [email protected] and we’ll make sure we can address those questions accordingly.

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.

 

 

Share this