Despite all the polls suggesting a Bill Shorten led Labor party would romp to victory in the just completed Federal election, Scott Morrison retained the Prime Ministership, with the Coalition looking like they will be able to form a majority government.
The result, whilst unexpected, has so far pleased the markets, with the ASX, and banking stocks in particular, enjoying a solid rally in the first two trading days of this week.
This short-term (and we want to stress short-term) reaction was entirely to be expected, as a Labor loss has allayed the fears of many investors in both the Australian property market, and the Australian share-market.
This is because Labor’s proposed changes to franking credits, negative gearing, and capital gains tax, are all now confined to the dustbin of history.
Whilst this has undoubtedly come as good news for some (the mood at the recently completed Australian Shareholders’ Association National Conference, of which we’ll write more about next week, was one of jubilation at the result), it’s important that investors look past the noise of day to day market moves, and keep an eye on the big picture instead.
And this big picture is entirely unaffected by the events of the weekend, and like it has for the last fifteen plus years, continues to support investing in tangible discreet assets like pink and blue diamonds.
Why do we say nothing has changed?
It’s simple really – and it all comes down to the fact that, despite the election result, the Australian economy (which has been run by the Liberal party for the last few years), remains incredibly weak.
The best evidence on this was seen on Tuesday, when the Reserve Bank of Australia all but guaranteed interest rate cuts are coming. The RBA always has to be somewhat cautious in how it communicates with the market, but Phil Lowe, the current governor, stated that when the RBA meets in June, it “will consider the case for lower interest rates.”
There are many factors that give us confidence about the outlook for pink and blue coloured diamond prices in the years ahead.
There is the strong historical performance, the fact that they are effective portfolio diversifiers, that they have proved better long-term investments than cash in the bank (especially now that interest rates are so low) and the fact that as discrete, tangible assets, they are growing in popularity amongst investors wanting to secure their wealth.
Finally, there is the rarity of the stones themselves – a factor that will be enhanced by the imminent closure of the Argyle mine by 2021.
These are themes that we discuss regularly with our clients at Australian Diamond Portfolio, either via emails, or in our Diamond Master Classes and consultations.
In this update though, we wanted to share with you another insight which helps highlight the strong demand for rare pink and blue diamonds. That insight is the operating results for the Argyle Mine itself, and the returns it is generating for its owner, Rio Tinto.
Whilst Rio Tinto makes the vast majority of its money from iron ore and aluminium, its diamond business does add to its bottom line, with a fascinating article in the Financial Review published in early May 2019 pointing out that revenues from the Argyle mine had soared to their highest levels in a decade.
This week the Fancy Colour Research Foundation (FCRF) released their latest performance figures for coloured diamonds.
Pink diamonds, which the vast majority of Australian Diamond Portfolio clients invest in, rose by 0.5%, with gains for local investors magnified by a slight decrease in the value of the Australian dollar since the start of the year.
Pink diamond prices were primarily driven by larger Vivid Pinks, which were up by more than 3% for the quarter, a return that would equate to more than 12% for the year, should the pace of the gains be maintained across the rest of 2019.
The steady increase in the prices for pink diamonds over the first quarter of 2019 are consistent with what we have seen over the last several years. Since 2005, there have been some quarters where prices rise incrementally, whilst in other quarters we see much larger increases, with pink diamonds rising almost 400% over this time period.
The rarity of these pink diamonds will of course only be enhanced by the imminent closure of Argyle Mine by 2021, and this is one of the primary reasons why Australian Diamond Portfolio specialise in sourcing high quality pink stones for our clients.
Adding to our confidence in the outlook for pink diamonds is the risks that continue to build in the economy.
In financial markets, whilst the last quarter was positive for shares, it occurred against a backdrop of a slowing global economy, with manufacturing data around the world going through its longest losing streak ever in terms of output, whilst global trade volumes recently recorded their biggest falls since the Global Financial Crisis (GFC).
Last week was another great reminder of why investors are turning to tangible safe haven assets like rare pink and blue diamonds.
In Australia, we saw the release of official inflation figures, which came in flat for the quarter, and up just 1.42% for the year, the lowest rate on record.
It led to two rapid outcomes, both of which are good for diamond investors.
The Australian dollar fell rapidly, at one point falling below USD $0.70, and
Odds of an interest rate cut by the Reserve Bank of Australia strengthened noticeably, with some analysts forecasting that the RBA will cut rates when they next meet in early May.
An interest rate cut, when it comes, is unlikely to be a one-off, as the following chart from the ASX indicates.
The chart, for those who’ve not seen it before, plots current market expectations for interest rates all the way out to September of 2020, with the purple columns highlighting where the market thinks rates will be on a month by month basis between now and then.
As you can see, at present, the market is forecasting rates will be below 1.25% by July 2019, indicating one interest rate cut within the next three months. By February 2020, rates will be below 1% based on current market pricing.
Whilst lower interest rates might be good news for homeowners or property investors with big mortgages, they are a disaster for those living on their savings, who are all going to get a pay cut in the coming months if rates decline from their already record lows.
Quite naturally, this will lead to two outcomes:
With less disposable income coming in, these savers will cut back their discretionary spending.
They’ll look for investment alternatives to low yielding cash, of which rare coloured diamonds will be one.
Up and down the East coast of Australia, it seems almost everyone is focused on the property market.
This is something we expect will continue for the foreseeable future with the Federal election now less than a month away, and a range of changes to how property is taxed set to be implemented in the months that follow.
And whilst many property investors are hoping that the decline in house prices is over, it’s not looking that way, with research from Morgan Stanley suggesting house price falls will continue for the rest of the year at the very least.
The chart below, which comes from Morgan Stanley, shows the movement in their own proprietary housing market model, and the change in house prices, over the past 25 plus years.
As you can see, they are highly correlated, and it suggests further price declines ahead; with Morgan Stanley stating; “housing weakness is likely to persist through to the end of the year at least, with further downside to both approvals and prices.”
Developments in the local housing market will likely spur rare coloured diamond demand and prices for a handful of reasons.
The first and most obvious is that as prices fall, investors will look for alternative assets to protect and grow their capital.
As Australian Diamond Portfolio welcomes master diamond cutter David Burger to the team, we take a look at how David came to cut some of the most valuable diamonds ever unearthed.
This article originally appeared in Wish by The Australian – September 2015.
In the world of diamond cutting, there is no room for trembling hands or a faint heart. Rio Tinto’s latest argyle pink tender is the jewel in the crown of David Burger’s long career.
Billions of dollars of the world’s finest diamonds have passed through master craftsman David Burger’s hands during his 40-year career, which he describes as a passion, not a job. At the age of 65, Burger is hanging up his tools and retiring from a profession he has a great love for and one that is a dying art in Australia’s diamond industry.
Born and bred in Johannesburg, South Africa, he emigrated to Australia in 1981. Six years later he started work for one of the world’s largest miners, Rio Tinto, crafting the exquisite pink diamonds from its West Australian Argyle mine. During his 27 years at Rio he has cut and polished the finest of Argyle diamonds, including reds, pinks, blues and yellows.
Burger, who polished the world’s first million-dollar-per-carat purplish red diamond in 1997, has cut and polished the vast majority of Argyle’s tender diamonds for the past 25 years. He worked on almost half — 29 out of 65 — of the stones in this year’s pink diamond tender, which is known as the “Connoisseur’s Collection”. The 65 diamonds weigh a total of 44.14 carats, including four “Fancy Red” diamonds. The 2015 Argyle pink diamonds tender has already had viewings in Sydney, Hong Kong, New York and Perth, with bids set to close on October 21.
The names of some of the best diamonds in this year’s tender have been inspired by the world of ballet, in recognition of Rio’s partnership with the Australian Ballet. One of the top stones this year is the “Argyle Prima”, a 1.20ct fancy red pear-shaped diamond.
Above, David Burger, in the diamond business for 40 years, examines a rare Argyle pink. Right, Ocean Seer, a deep grey violet octagonal.
Burger says his passion for the diamond craft was born in the 1960s through a family friend in South Africa, who introduced him to the profession and helped him sign on to a five-year apprenticeship. He says it was a close-knit industry and you needed to know someone to break in. Once in, he soon realised he had a skill for the “fancy” stones.
Lovers of diamonds marvel at the sparkle, shape and size of the precious stone, but before it is shining in a shop window, or being displayed around the world in an exclusive high-level tender, it starts life as a “rough”. Burger revelled in the task of extracting the maximum beauty and price out of what natural forces and time had created. Sitting at a work bench in the high security offices in Perth, he would examine a rough diamond and says he knew in 10 minutes what he would create.
“When I look at a stone in the rough, as I assess it I look at where the flaws are situated, what the shape of the rough is and more and more my mind starts working what it will make out of it,” he says. “When you see a piece of rough and it’s extraordinary you get excited and start thinking what am I going to do with that.” He explains that a diamond has 58 facets and through his five-year apprenticeship he was taught about the structure of a diamond and how it runs on the wheel.
“It’s not just like a semi-precious stone where you can put it in the tool and on the wheel and it rotates and polishes,” he explains. “A diamond has grain like wood, and knots like wood, so you have to find the running plane, and you have to plan the stone from the very beginning because your very first facet will determine where all the other facets will run.”
The master craftsman has twice visited the Argyle mine, home to the stones he has worked on over 27 years. The second trip was this year — but it was not for reasons of business or mere curiosity. He was there to attend a smoke and water cleansing ceremony. The local indigenous community had invited him there because he had polished a stone, named Lady in Red. When that stone was photographed, the image of a lady appeared in the photo and the traditional owners believed Burger had stolen the spirit of the lady from the Kimberley and requested he be cleansed. It’s an experience from an eventful career he says he will fondly remember in retirement.
Burger, who looks at the diamond with his left, short-sighted eye, says it takes anywhere from two days to a week to finish a stone, which goes on a one-year journey from mine to sale. “It is an art and a passion, it’s not just a job,” he says. “Once you’ve made a decision on doing something and it works out to the size and colour you had in mind, there is a tremendous sense of satisfaction.”
Burger’s boss, Shauna Holdsworth, says his artistic flare was amazing, explaining that he can visualise in 3D the final product even before the technology is applied to it. “He sits down and sketches,” says Holdsworth, the manager of operations at Argyle’s specialist cutting and polishing facility. “You follow his pencil drawing to put the stone together, so you have to listen to the polisher. You can have all the inputs in the world through technology, but if that stone doesn’t run like Dave said, then you have to readjust.”
Burger says some stones are more trouble than others, and a craftsman needs to be confident in his skills — there is no room for self-doubt: “If you don’t have strong nerves, this isn’t the job for you.”
As Australian Diamond Portfolio welcomes master diamond cutter David Burger to the team, we take a look at how David came to cut some of the most valuable diamonds ever unearthed.
This article originally appeared in Argyle Diamonds – Celebrating 21 Years of Passion, People and Pinks – 2005.
Tucked away in west Perth at Argyle Diamonds’ head office a team of polishers spin their diamond topped wheels and create pure pink magic. Diamond polisher Dave burger is a member of this elite team.
Dave has spent the past 39 years polishing diamonds in South Africa and Australia, 18 of these with argyle, and his speciality is pink diamond fancy cuts. In fact, the argyle pink diamond and Dave have something in common. His expertise, precision and artistic flare makes him, like the pinks, one of the rarest of his kind in the world.
“I was born in South Africa and started polishing diamonds at a factory affiliated with De Beers when I was 17 year old. It was very lucrative in the 196os with diamond polishers earning as much as doctors and lawyers. My first taste of Australia was a holiday to Queensland in 1979. We loved it so much we decided to come over here to live. I set up my own business in 1981 in Queensland polishing diamonds and stuck with that for several years.
In 1987 I was approached by Argyle so I came to Perth to have a look around. My first impression of Argyle was that the factory was really neat and modern and the company seemed to be very safety conscious, so I accepted the job. Working with the Argyle pink diamonds was completely different to South Africa’s large white and yellow diamonds. They were smaller, much more valuable and had their own challenges such as rare knotted inclusions which could crack the diamond if not faceted properly.
I’ve been polishing the vast majority of the Pink Diamond Tender stones for the past 15 years. It takes nerves of steel when you start polishing the larger pinks which may end up in the Pink Diamond Tender. I like to think of what I do as an art, taking the rough stone and determining the best shape to cut, to bring out the brilliance of the stone. I don’t have any particular shape I like best, although the oval is certainly the hardest to hand-shape. I recently created a new shape that we call the Argyle cut (not patented), it’s quite unusual and the few stones we’ve done have proven to be very popular.
I enjoy trying new cuts and once the stone is complete it’s really wonderful to get positive feedback. It does make you feel proud of your work and encourages you to try and do even better.”
Hand polishing large pink diamonds is a state of the art craft in which there are only a handful of experts world-wide. Years of training teach polishers the complicated method, but it is individual flare and the ability to make the most of each diamond that makes some polishers stand out from the rest.
Argyle pink diamonds are assessed on their colour, carat, clarity and cut, so the polisher must consider all four elements. A o.99 carat diamond is worth disproportionately less than a one carat diamond, and the deep pink or even red may be lost if too much of the diamond is polished away. The cut is equally important as it affects the brilliance and scintillation (fire) of the diamond. Argyle’s polishers create a wide range of cuts including the emerald, heart, oval, pear, princess, radiant and round brilliant.
Source: Argyle Diamonds – Celebrating 21 Years of Passion, People and Pinks – 2005
Over a quarter of a century Larry West has scoured the globe looking for some of the world’s rarest coloured diamonds. This week he secured a big prize, the Argyle Violet, which he bought along with 15 other coloured stones for more than $10m.
“At 2.83 carats, this is the largest and most valuable violet diamond ever recovered from the Argyle mine,” says Mr West, founder of New York’s LJ West Diamonds. “You could fill a garbage truck with the rough diamonds produced from the mine every year, an ashtray with pink diamonds but only a half teaspoon of violets,” he says.
Rio Tinto’s Argyle mine, which is based in the remote north-west of Australia, produces about 90 per cent of the top-quality red, pink and violet diamonds dug up worldwide. The stones are extraordinarily rare, accounting for 0.1 per cent of the mine’s annual output with the remainder made up of more affordable champagne and cognac stones used in the fashion jewellery sector in the US, China and India.
Uncertainty over the Argyle mine’s future, as well as growing appreciation for rare pink diamonds among the super-rich, is prompting a surge in the value of these coloured stones even as the price of traditional white diamonds falls on world markets.
A 9.14 carat pink pear-shaped diamond is expected to realise $16m-$18m when it is auctioned at Christies in Geneva next week.
“Pink diamond prices have tripled over the past 15 years and on average would be at least 25 to 30 times the value of white diamonds,” says David Fardon, chief executive of Linneys, one of 35 ateliers mandated to buy coloured diamonds from Argyle.
By comparison, global sales of diamond jewellery fell in 2015 for the first time in six years, declining 2 per cent to $79bn. Sales of rough diamonds fell 30 per cent.
Mr Fardon says the scarcity of coloured pink, red and violet diamonds mined at Argyle has enabled them to buck the downward trend in diamond prices. He says they have become a collectable item, with some of his clients buying the stones to include as part of their retirement savings fund.
In 2013 Rio said it was extending Argyle’s life until 2020 by building an underground extension to the existing open-cut mine. But it is uncertain whether Rio will sanction any new investment to extend the Argyle mine’s life beyond that date, in part because the valuable pink diamonds make up a small fraction of the mine’s total output.
“The odds are the mine will close a year or two after that, which means these stones will become more and more valuable,” says Mr West, one of the world’s most prodigious buyers’ of Argyle pinks.
Rio would not comment on its future investment plans for Argyle.
Eden Rachminov, an Israeli diamond specialist and author of The Fancy Colour Diamond Book, says the success of Argyle’s pink diamonds is also down to smart marketing.
“Argyle has done a terrific job in branding its stones, which tend to be more expensive than pink diamonds mined elsewhere in the world such as Russia, Africa and Brazil,” he says.
Celebrities such as Barbra Streisand, Victoria Beckham, Nicole Kidman and Princess Mary, the Australian who married the Danish crown prince, all own Argyle pinks, which are building a loyal following among the rich and famous.
Mr West says he plans to show the Argyle Violet in an exhibition at the Museum of Natural History in Los Angeles to raise awareness of coloured diamonds.
“It’s important to let the public see them and get the word out. That can only add value to the market,” he says.
The rectangular-cut, 18.96-carat, fancy-vivid-pink stone went for $50.4 million at the auction Tuesday, becoming the most expensive pink diamond Christie’s has sold, the auction house said. At $2.7 million per carat, it also achieved a world-record average price for a pink diamond at auction, beating the 14.93-carat Pink Promise, which fetched $32.5 million ($2.1 million per carat) at Christie’s Hong Kong in 2017.
Image: The Winston Pink Legacy. (Christie’s)
The buyer renamed the stone — formerly the Pink Legacy — as the Winston Pink Legacy. It previously belonged to the Oppenheimer family, and had a presale estimate of $30 million to $50 million.
“This exceptional diamond captured the imagination of international collectors across the globe, with over 30,000 people visiting Christie’s sale previews to see this remarkable stone,” said Rahul Kadakia, Christie’s international head of jewelry. “It has taken its rightful place among the world’s greatest diamonds.”
The auction also saw an Art Deco piece by Van Cleef & Arpels fetch $4.3 million, well above its presale estimate of CHF 2 million to CHF 3 million ($2 million to $3 million). A natural-pearl necklace garnered $1.2 million against a valuation of CHF 240,000 to CHF 340,000 million ($238,190 to $337,345 million).
Some 86% of lots sold at the Magnificent Jewels auction, yielding a total of $110.2 million. The event was 90% sold by value of items available.
‘To find a diamond of this size with this colour is pretty much unreal,’ he continues. ‘You may see this colour in a pink diamond of less than one carat. But this is almost 19 carats and it’s as pink as can be. It’s unbelievable.’
Scientists classify diamonds into two main ‘types’ — Type I and Type II. In the latter, the diamond has a particularly rare, almost homogenous colour. ‘Pink diamonds fall under the rare Type IIa category of diamonds,’ explains the specialist. ‘These are stones that have little if any trace of nitrogen, and make up less than two per cent of all gem diamonds. Type IIa stones are some of the most chemically pure diamonds often with exceptional transparency and brilliance.’
The Pink Legacy, a Fancy Vivid Pink cut-cornered rectangular-cut diamond of 18.96 carats. Sold for CHF 50,375,000 on 13 November in the Magnificent Jewels sale at Christie’s in Geneva
While most pink diamonds exhibit a colour modifier like purple, orange, brown or grey, the Pink Legacy shows no trace of a secondary colour. Its even colour distribution, combined with a balanced saturation, tone and straight pink hue, qualify the 18.96 carat diamond for the coveted ‘Fancy Vivid’ colour grading from the Gemological Institute of America (GIA). Only one in 100,000 diamonds possess a colour deep enough to qualify as ‘Fancy Vivid’, and the Winston Legacy set a new record price per carat for a pink diamond.
‘Pink diamonds of any size and depth of colour have always had a special allure. This 18.96 carat emerald cut pink diamond is amongst the rarest of all gemstones’
Tom Moses, Executive Vice President GIA.
In the Fancy Vivid Pink range, diamonds of more than five or six carats are rarely encountered. In fact, fewer than 10 per cent of pink diamonds weigh more than one-fifth of a carat. In the saleroom, Fancy Vivid Pink diamonds over 10 carats are virtually unheard of — in over 250 years of auction history at Christie’s, only four such stones have ever appeared for sale.
The Pink Legacy diamond in a ring
Driven by collector demand and an increasingly limited supply, prices for top-quality large pink diamonds has increased exponentially over the years. This booming market reached an historic level in Hong Kong in November 2017 when Christie’s sold ‘The Pink Promise’, an oval-shaped Fancy Vivid Pink diamond of just under 15 carats, for $32,480,500 — a whopping$2,175,519 per carat. The figure remains the world auction record price per carat for any pink diamond.
This incomparable pink diamond has descended from the Oppenheimer Family and its sale was a major moment in auction history.