Just when you thought 2020 couldn’t get any stranger, last week the whole world found out that US President Donald Trump, his wife First Lady Melania Trump and a host of White House employees have all contracted COVID-19.
It only adds to the intrigue and confusion that has been building in the lead up to the US Presidential Election, which is due to take place in four weeks on Tuesday the 3rd November 2020.
Given markets hate uncertainty, there was no surprise that the news of Trump contracting COVID-19, as well as its re-emergence in Europe and other parts of North America was met with an original sell off in stock markets.
Irrespective of who ends up the White House, the bigger picture issue is that in time we will need to deal with the fact that the economic contraction caused by COVID-19 has no easy solution, with traditional investments like stocks and bonds likely to suffer in the years to come.
These trends all reinforce the investment case for pink diamonds, as we explore further in this note.
Why COVID-19 will boost pink diamond demand
Demand for pink diamonds has been very strong in 2020, with COVID-19 reinforcing many of the reasons why astute investors should want to own discrete hard assets in their portfolio.
Those reasons include:
- Lower economic growth: COVID-19 has forced the global economy into its largest contraction in 100 years. It will take years to get back to where we were at the start of this year in terms of economic output, with this hit to growth encouraging investors to look at alternative assets.
- More debt: The huge hit to growth that we have seen globally has been met, and will continue to be met with gargantuan levels of government debt. All of this will need to be serviced, creating a liability that can only be met by higher taxes, future cutbacks in government spending, higher inflation, or a combination of all three. There are no free lunches.
- More risk in share markets: Lower growth means lower company earnings over time. Given markets were already trading near record multiples before COVID-19 hit, the risk is obvious, with zero to negative interest rates, money printing and direct asset purchases by central banks all that is holding share markets together.
- Lower interest rates: Interest rates are set to stay below zero after inflation for decades to come. Money in the bank is dying a slow death, which is also encouraging investors to look at hard assets that protect value against inflation. Pink diamonds are obviously one such asset.
This week we came across an article in the Financial Times which touched on another key reason COVID-19 will lead to higher demand for pink diamonds, and therefore higher prices. This reason has to do with the change in consumer preferences that COVID-19 has helped bring about.
As one analyst put it: “During the pandemic, discretionary spending has shifted away from luxury holidays, couture and high-end accessories to jewellery, diamonds and gemstones as a store of wealth, a hedge against possible inflation, an undeniable mood-lifter and a memento that can be passed down.”
Read that again. A store of wealth, a hedge against possible inflation, an undeniable mood-lifter, and a memento that can be passed down. Those are four great reasons to own pink diamonds.
Notably, the article went on to quote Albert Boghossian, the CEO of Geneva based Boghossian Jewels, who stated that: “Top pink and blue diamonds are the gems that are leading the interest of investors“.
This makes perfect sense from our perspective.
For whilst COVID-19 has severely limited our freedoms, for some people this actually frees up wealth and spending power that can instead be directed toward investment opportunities. For nearly all of us, it has given us more time to assess the potential risks and rewards in our existing portfolio.
Given these factors, and the multiple risk factors facing traditional investments we discussed above, it is no surprise to see a notable uptick in investors looking to grow and protect wealth through an investment into coloured diamonds.
Argyle Diamond Mine closing next month?
Whilst the formal close date for the Argyle Diamond Mine is yet to be announced, all public statements from the mine owner Rio Tinto state the mine will close in 2020.
Social media suggest the closure could occur as soon as next month, with some accounts stating that the “last bucket of Argyle dirt” will be processed in early November 2020.
The closure of the mine, plus the exposure that is being generated by the 2020 Argyle Pink Diamonds Tender, and the COVID-19 related factors that are driving pink diamond demand higher, have all combined to create the perfect storm that will push prices higher in the years to come.
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.