It’s been a quiet few weeks in investment markets, with volatility dying in the short-term, and most markets moving higher in 2023 so far, even if they aren’t generating much excitement amongst investors.
Despite the bounce in asset prices that we’ve seen this year, the risk in broader markets, and in the economy, continues to grow, with signs aplenty that the United States, and likely most of the developed world, is headed for a recession later this year, or perhaps in 2024 at the latest.
Typically, recessionary periods see huge spikes in market volatility, and rising demand for genuine safe havens and alternative hard assets.
That’s certainly what we saw when the Global Financial Crisis (GFC) hit some fifteen years ago, and again during the COVID-19 pandemic between 2020 and 2022.
Both of these periods were of course also opportune times to be holding pink diamonds, for not only did pink diamonds not suffer the violent correction that the share-market did, but also rocketed higher once liquidity was injected into markets in an effort to help them stabilise.
With the pink diamond market setting more price records, the same scenario looks to be playing out again.
We can’t say we weren’t warned!
One of the beauties of the modern day and age is the easy access to great information about what’s going on in the economy, and in investment markets.
If you are into managing your own money, and take the time to monitor what is going on, there is little reason why you can’t stay on top of the big picture trends impacting asset prices. This of course helps you decide what to invest in, and just as importantly, what not to invest in.
To this end, in the last week or so, we’ve seen more evidence that the United States is headed for a serious recession, with the below chart (courtesy of @CharlieBillelo) highlighting the widely quoted Consumer Sentiment Index published by the University of Michigan.
University of Michigan Consumer Sentiment Index
The pink line on the chart measures how confident consumers are feeling, with the data visible all the way back to the 1950’s. Today, consumers are not feeling confident at all, with current readings similar to what we saw in previous periods the US entered a recession.
There is little reason to think that this time will be any different, with the chart author noting that: “US retail sales increased 0.5% over the last year, the lowest growth rate since May 2020 and well below the historical average of 4.8%. After adjusting for inflation, though, the story is far worse. Real retail sales fell 4.2% over the last year, the 6th consecutive YoY decline.”
Note that this is despite consumers still gorging themselves on credit card debt, with the amount of money Americans owe on their plastic going up by 17% in the last year, the largest spike in more than two decades.
Coupled with a slowing housing market, banks that are growing more cautious with their lending, and lower tax receipts (they fell 6% in the last year), which is arguably the most alarming warning sign of all, there is little doubt a recession is on the way, especially if central bank hikes interest rates in an attempt to crush inflation.
Given this backdrop, it’s an incredibly risky time to be putting more money into shares, property or crypto-currencies, all of which tend to love buoyant periods in the economy, but struggle in adversity.
Pink diamonds on the other hand have shown great resilience in the past. It’s part of the reason the market remains so strong today.
More records in the pink diamond market
As we often remind clients at Australian Diamond Portfolio, the pink diamond market is accessible for regular investors from $20,000. SMSF trustees tend to invest a little more, between $50,000-$200,000 depending on their overall fund size.
Despite this accessibility, with diamonds in these price ranges dominating overall trade volumes, there is no doubt, and little surprise that the news media love stories about pink diamonds that are only affordable to the ultra-high-net-worth end of the market.
We saw another example of that this week with news that Sotheby’s Dubai are exhibiting a 10.57 carat Internally Flawless Fancy Vivid Purplish Pink Diamond, called the Eternal Pink, with an estimated value of $35 million.
While the price tag is likely to be out of this world (it may fetch the highest price per carat for any pink diamond ever auctioned), Sophie Stevens, head of jewellery at Sotheby’s Dubai, made a comment which resonates with investors of any budget, and in our view applies to the whole pink diamond market.
She noted, “Diamonds have such an exceptionally long history. They’ve been referenced throughout ancient texts for millennia, they’ve always been revered as stones of power, of might, of strength. It’s something tangible that the Earth produces that’s also so beautiful. They’ve endured for centuries and carry a romance about them.”
Closer to home, and Rio Tinto recently released a new 1.36 carat fancy pink diamond, the “Argyle Rose”, with this diamond discovered so late it didn’t make Rio’s final diamond Signature Tender in 2021.
The beautiful stone is rare indeed, with news reports suggesting there have only been 12 radiant cut diamonds over one carat with the highest colour grading (1P) produced at Argyle in more than 30 years of production.
Stories like this will only help to bolster the profile of the pink diamond market, and help boost demand, and prices in the long-run.
They are but one of many reasons to remain bullish on this niche asset class as we head toward the end of this financial year, with pink diamonds again set to feature prominently amongst the list of the best performing assets over the past twelve months.
As always, we hope you’ve enjoyed this week’s edition of “In the Loupe” and we look forward to any questions or comments you may have.