Pink diamonds and the year ahead!

It is hard to believe, but this year has less than one month to go, with Christmas and New Year celebrations now firmly on the horizon.

Like most of you, we are looking forward to a well-deserved break over the coming holiday period, and enjoying time with family, friends, and other loved ones.

The holiday period will also allow for a period of reflection on the year that has been, as well as an opportunity to plan for the year ahead.

That includes an assessment of the current financial market and economic environment, which we delve into below.

Steady as she goes for pink diamonds

In our many years in the pink diamond industry, we have found that there is one particular three-part observation that resonates very well both with existing as well as potential pink diamond investors.

And this observation is that:

• Pink diamonds have some years where prices skyrocket higher.
• Pink diamonds have some years where prices are largely stable or just edge higher.
• Pink diamonds have essentially had no years where prices fall.

The above performance profile is perhaps best encapsulated in the following headline from a November 2024 article in the Financial Times that espoused the benefits of investing in pink diamonds.

The article is noteworthy for a number of reasons, with quotes from diamond market executives highlighting the fact that these diamonds have achieved double digit average annual growth, while Rio Tinto’s desire to maintain control of the Argyle brand, and indeed invest in expansion of the secondary market through concierge trading services, re-certification and re-authentication programs as well as high-profile sales events gives strong evidence of the continued opportunity these rare assets offer to long-term investors.

For a reference point, consider that, as per the article, some of the pink diamonds being marketed by Rio Tinto now are priced at a per carat rate that is measured in the multi-millions, even though the stones themselves emerged in the mid-1980s, when prices were measured in the tens of thousands per carat.

Back to the short-term, and barring a major market event in the next four weeks, the three part saying about pink diamond performance will hold true again in 2024, with the market experiencing yet another year of stability, with most investor attention focused elsewhere.

Developments in markets aside, this current period of price stability for pink diamonds, which has now been in play for the last two years, was very much to be expected, for three main reasons:

• The first of these was the explosive price growth that we saw in 2020 and 2021, with pink diamond prices soaring back then given the policy stimulus deployed by governments and central banks in response to the COVID pandemic, as well as the closure of the Argyle Diamond Mine, which ceased operations in late 2020.
• The second reason the pink diamond market has stabilised is that for the first time in a generation, inflation and higher interest rates are really biting into the wallets of middle-class households. For the better part of twenty years, households and consumers had grown used to ever cheaper debt, which they would use to pump up asset prices (including real estate). They also saw mostly declining and extremely low levels of inflation, which was comfortably outpaced by wage growth. And while headline inflation has fallen in the last two years, and interest rates are beginning to fall, consumer wallets remain stretched.
• The last reason the pink diamond market has been quieter is the boom in other asset prices, with 2024 marking one of the strongest years on record for stocks, while other risk assets like crypto are surging.

We delve into this last point in more detail in the section below.

Euphoria in markets ignores building risks

It is no wonder most people find it hard to grow their wealth through investments into financial markets and other assets. After all, the movements in asset prices often seem to make no sense when one considers the background in which they are occurring.

This year is no exception. After all, on the geopolitical front, things have gone from bad to worse, with the conflict between Russia and Ukraine escalating, while the situation in the Middle East is as fragile as it has been in decades.

Industrial powerhouses like Germany are also suffering economically, while even the United States is needing to run trillion-dollar deficits to keep the economy growing.

It sounds like a recipe for markets to be tanking. Instead, we have seen:

• Cryptocurrency prices surge, with Bitcoin up by 110% year to date at the time of writing (in USD terms) with the price approaching USD $100,000 per coin.
• The stock market has had one of its strongest years ever, with the S&P 500 in the United States up by 27%, and now above 6,000 points.
• Investor sentiment surge, with speculative positioning data about as stretched as it has ever been, while the chart below shows that the number of individual investors in the market that are worried about a stock market crash is at its lowest point since June 2006.

Individual investors surveyed are the least worried about a stock market crash since June 2006

For those with a view of history, markets did go onto crash, and by circa 50%, commencing not long after that, with this indicator a very clear market extreme.

The exuberance on display in markets, as evidenced in the chart above, also stands in direct contrast to the actions of corporate insiders (think CEOs and CFOs of large listed companies) with executive stock sales reaching an all-time high.

If we see similar trends unfold in 2025 and beyond, it will not surprise us to see three things happen:

• Markets will see a huge uptick in volatility, and a potentially painful decline, especially in cryptocurrencies and the frothier end of the stock market.
• Governments and central banks to release ever more stimulus (which will mean more debt, lower interest rates, and more money printing).
• Most importantly, a renewed appreciation and investor appetite for tangible, genuinely scarce assets with a history of capital appreciation, inflation protection and diversification potential.

That third bullet point defines pink diamonds in a nutshell – with the unique supply constraints of the market, and their genuinely striking physical beauty only making pink diamonds a more compelling investment choice to consider in 2025.

Feedback welcome

As always, we hope you have enjoyed our latest edition of “In the Loupe” and we look forward to any questions or comments you may have.