It goes without saying that the COVID-19 situation in Australia has gone from bad to worse to disastrous in the space of the last week. Lockdowns and restrictions on movements that were at first limited to 4 local government areas in New South Wales, where Australian Diamond Portfolio is headquartered, have quickly spread up, down and across the nation.
As I write this note on Tuesday 29 June, nearly the entire country is affected in some way, with Queensland, Perth, New South Wales and the Northern Territory all in various states of lockdown, whilst there are restrictions in place in South Australia and Victoria.
The rather sad image below sums it all up!
Whilst we all wish this scenario wasn’t unfolding, this week has smashed once and for all the idea that 2021 would see a return to normal, with the loss of personal freedoms, and the economic dislocation caused by COVID-19 now likely to be a factor well into next year.
Indeed, this time it could be worse, at least in an economic sense, with most of the emergency stimulus that was deployed last year to keep the economy going having now ceased, with nothing as yet to take its place.
All this uncertainty will no doubt have investors reassessing their portfolios, with a greater focus on wealth preservation.
Whilst pink diamonds have a well-deserved reputation as a safe haven asset – they offer far more than that to astute investors wanting to build a portfolio of profitable assets.
We explore in more detail below.
More than a safe haven asset
The risk to the economy that COVID-19, and the attempts to stop its spread is impossible to overstate. We are almost certain to go into some kind of double dip recession here in Australia, or something very close to it, with all the projections for economic growth in the years ahead needing to be revised down.
As investors, we’d argue the risk from COVID-19 is even more significant for financial markets than it is for the economy. This is because most markets, from the share market, to the property market to the bond market are trading at, or very close to all-time highs.
They would be risky investments at the best of times given where they currently sit, and these are self-evidently not the best times, given the ongoing challenge the pandemic poses.
It would be different if the stock market was 50%-60% lower, like it was a year ago, or if a term deposit was paying 5% yields after inflation, or if the government or central bank were yet to deploy hundreds of billions in stimulus into the economy, but that is not the situation we find ourselves in today.
Given this backdrop of a bad and worsening economic outlook combined with record valuations across broader markets, we think its very likely tangible, hard assets that are limited in supply will be one of, if not the only place that generates real wealth in the decade ahead.
Pink diamonds are arguably the best placed tangible hard asset to deliver above average returns in this time period, given their genuine scarcity, and the rising investment demand on display, which has accelerated dramatically in the last six months.
This helps make pink diamonds more than just a safe haven asset. For not only are they a hedge against inflation, a diversifier in a portfolio, and a natural choice when real interest rates are low or negative like they are today, but pink diamonds are also an investment opportunity that can deliver very significant wealth to those astute enough to invest in this asset class.
The last 15 years have demonstrated this very clearly. And nothing has changed!
Register for our webinar
Next Thursday the 8th July, Australian Diamond Portfolio will be hosting a webinar on the merits of investing in pink diamonds.
Titled “Pink Diamonds – More than a Safe Haven Asset” – the webinar will cover a range of factors including:
- Key market drivers that have helped pink diamond prices grow at more than 10% per year since 2005.
- How allocating funds towards pink diamonds can add diversity to an investment portfolio.
- How pink diamonds can form part of an SMSF, and how ADP help investors meet all of their reporting requirements.
- A virtual tour of the vault, and the storage and insurance options ADP can provide.
Most importantly, we look at the late 2020 closure of Rio Tinto’s Argyle mine in Western Australia, source of 90% of the world’s pink diamonds, and why that closure, which has already caused a surge in pink diamond prices in the last 6 months, is set to continue driving the market much 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.