It is hard to believe it has now been almost 4 years since the Argyle Diamond Mine, source of more than 90% of the world’s pink diamond supply, shuttered for good, with operations at the mine brought to a halt in late 2020.
The closure of the mine, which coincided with the emergence of COVID, the slashing of interest rates, and the deployment of trillions of dollars of fiscal and monetary stimulus; as governments tried to limit the economic fallout from the pandemic, all of these factors combined together to spark a huge bull market run in the price of pink diamonds, with these assets front page news from an investment perspective back then.
The price increases that were seen in that period were enough to push the total return generated by pink diamonds from the year 2000 onward to more than 600 per cent, comfortably outperforming more mainstream investments like shares and property.
Wind the clock forward to today, and it is fair to say that the pink diamond market is more subdued. However, this is not a reflection of any problems with pink diamonds themselves, nor the long-term outlook for investments into these assets.
Rather, it is a natural outcome, given the hype generated by other assets, or corners of the market, from stocks leading the artificial intelligence (AI) boom such as NVIDIA, to cryptocurrencies like Bitcoin, and even other asset classes like private credit, which are sucking in billions of dollars as investors desperately chase returns in high-risk areas of the market.
Indeed, the relative calm and quiet that we are seeing in pink diamonds right now is a very natural part of the market cycle for these assets, with long-term clients of Australian Diamond Portfolio knowing that our assessment of these assets can be boiled down to three key points as it relates to market performance:
The pink diamond market has periods where prices increase rapidly.
The pink diamond market has periods where prices are largely stable.
The pink diamond rarely if ever has periods where prices fall or are volatile.
We are in a period of stability now. This is normal. It does not mean investors have turned their back on the pink diamond market.
Indeed, at the just completed International Jewellery Fair, and the Jewellery Industry Fair, both of which took place last weekend in Sydney, consensus amongst those involved in the pink diamond trade, either as suppliers or in another capacity, was that while trading volumes are likely to remain quiet for a little while longer at least, the underlying rationale for investing in pink diamonds remains as strong as ever.
The reason the outlook remains so strong is that there are a multitude of factors likely to stimulate demand in due course (see below for more detail on this), while supply is obviously not going to increase at an aggregate level in any meaningful way given the closure of Argyle.
The fact that prices have held firm in recent times, despite the dip in turnover, is supportive of this thesis, and is one of the reasons why we remain so optimistic about the outlook for this niche asset class.
The investment rationale for pink diamonds is ultimately quite simple.
On the one hand, supply is enormously constrained, with the market now almost exclusively trade in pre-owned goods, given global production of new pink diamonds is so miniscule.
On the other hand, demand can, and will continue to be driven by multiple factors, including:
The emergence of a burgeoning upper class in Asia and other parts of the world, many of whom have a penchant for discrete and beautiful hard assets, of which pink diamonds have no peer.
Risk conscious investors who want to hold pink diamonds as a portfolio diversifier, something that only becomes more valuable in a world of extreme volatility. This driver has certainly come to the fore in recent weeks, with the massive crash in equity prices from early July to early August (the NASDAQ in the United States for example fell by 13% in this period) reminding investors of the importance of holding steadier assets with minimal price extremes.
Investors that want to hold assets that outperform inflation over the medium to long-term, something that becomes even more important in a world where interest rates are almost certain to be reduced.
That last point is particularly important given recent market events, with interest rates in some parts of the world, including Europe, now on a downward path, as policy makers take desperate measures to stave off a collapse in economic activity, even if the rate of consumer price inflation remains uncomfortably high.
To that end, it is only a matter of time before interest rates are pushed lower in the United States, with most market commentators it will happen as soon as September. That will only be the start of an easing cycle, with the chart below suggesting that between now and August of 2026, rates in America are set to fall from just over 5.3% all the way down to just 3.2%.
That is a massive reduction.
Market Expectations For Fed Funds Rate (Data via Fed Funds Futures, August 2024 – August 2026)
Source: @CharlieBilello, Creative Planning
A world of 3% interest rates is also highly likely to be a world where cash in the bank, term deposits and government bonds are guaranteed wealth destroyers. They might be stable, but they will not stop you going backwards in terms of your standard of living.
Investors will respond and will turn to assets that have a history of outperforming inflation and growing real wealth in challenging times.
If history is any guide, pink diamonds will almost certainly be a beneficiary of this trend.
Over the last ten plus years, the team at Australian Diamond Portfolio have been privileged to help thousands of Australian investors access the pink diamond market.
That help has not only involved the procurement of the absolute best diamonds available for each investors budget (with a typical minimum entry point in the vicinity of AUD $25,000) but independent valuations through trusted third parties, and ongoing services including storage, insurance, and audit assistance.
If pink diamonds are something you would like to get exposure too, or just want to find out more about in the first place, then we would welcome the opportunity to discuss current trends in the pink diamond market.
Our team can talk through how these rare assets can fit into your portfolio, best practices to consider when buying pink diamonds, and the full suite of services Australian Diamond Portfolio can offer.
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.
Pink diamonds stable in a world of volatility
It is hard to believe it has now been almost 4 years since the Argyle Diamond Mine, source of more than 90% of the world’s pink diamond supply, shuttered for good, with operations at the mine brought to a halt in late 2020.
The closure of the mine, which coincided with the emergence of COVID, the slashing of interest rates, and the deployment of trillions of dollars of fiscal and monetary stimulus; as governments tried to limit the economic fallout from the pandemic, all of these factors combined together to spark a huge bull market run in the price of pink diamonds, with these assets front page news from an investment perspective back then.
The price increases that were seen in that period were enough to push the total return generated by pink diamonds from the year 2000 onward to more than 600 per cent, comfortably outperforming more mainstream investments like shares and property.
Wind the clock forward to today, and it is fair to say that the pink diamond market is more subdued. However, this is not a reflection of any problems with pink diamonds themselves, nor the long-term outlook for investments into these assets.
Rather, it is a natural outcome, given the hype generated by other assets, or corners of the market, from stocks leading the artificial intelligence (AI) boom such as NVIDIA, to cryptocurrencies like Bitcoin, and even other asset classes like private credit, which are sucking in billions of dollars as investors desperately chase returns in high-risk areas of the market.
Indeed, the relative calm and quiet that we are seeing in pink diamonds right now is a very natural part of the market cycle for these assets, with long-term clients of Australian Diamond Portfolio knowing that our assessment of these assets can be boiled down to three key points as it relates to market performance:
We are in a period of stability now. This is normal. It does not mean investors have turned their back on the pink diamond market.
Indeed, at the just completed International Jewellery Fair, and the Jewellery Industry Fair, both of which took place last weekend in Sydney, consensus amongst those involved in the pink diamond trade, either as suppliers or in another capacity, was that while trading volumes are likely to remain quiet for a little while longer at least, the underlying rationale for investing in pink diamonds remains as strong as ever.
The reason the outlook remains so strong is that there are a multitude of factors likely to stimulate demand in due course (see below for more detail on this), while supply is obviously not going to increase at an aggregate level in any meaningful way given the closure of Argyle.
The fact that prices have held firm in recent times, despite the dip in turnover, is supportive of this thesis, and is one of the reasons why we remain so optimistic about the outlook for this niche asset class.
The tide will turn.
The investment rationale for pink diamonds is ultimately quite simple.
On the one hand, supply is enormously constrained, with the market now almost exclusively trade in pre-owned goods, given global production of new pink diamonds is so miniscule.
On the other hand, demand can, and will continue to be driven by multiple factors, including:
That last point is particularly important given recent market events, with interest rates in some parts of the world, including Europe, now on a downward path, as policy makers take desperate measures to stave off a collapse in economic activity, even if the rate of consumer price inflation remains uncomfortably high.
To that end, it is only a matter of time before interest rates are pushed lower in the United States, with most market commentators it will happen as soon as September. That will only be the start of an easing cycle, with the chart below suggesting that between now and August of 2026, rates in America are set to fall from just over 5.3% all the way down to just 3.2%.
That is a massive reduction.
Market Expectations For Fed Funds Rate
(Data via Fed Funds Futures, August 2024 – August 2026)
Source: @CharlieBilello, Creative Planning
A world of 3% interest rates is also highly likely to be a world where cash in the bank, term deposits and government bonds are guaranteed wealth destroyers. They might be stable, but they will not stop you going backwards in terms of your standard of living.
Investors will respond and will turn to assets that have a history of outperforming inflation and growing real wealth in challenging times.
If history is any guide, pink diamonds will almost certainly be a beneficiary of this trend.
Speak to the team!
Over the last ten plus years, the team at Australian Diamond Portfolio have been privileged to help thousands of Australian investors access the pink diamond market.
That help has not only involved the procurement of the absolute best diamonds available for each investors budget (with a typical minimum entry point in the vicinity of AUD $25,000) but independent valuations through trusted third parties, and ongoing services including storage, insurance, and audit assistance.
If pink diamonds are something you would like to get exposure too, or just want to find out more about in the first place, then we would welcome the opportunity to discuss current trends in the pink diamond market.
Our team can talk through how these rare assets can fit into your portfolio, best practices to consider when buying pink diamonds, and the full suite of services Australian Diamond Portfolio can offer.
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.
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