02 Jun

Pink Diamonds – The Attention is Building!

It’s hard to believe that we are almost half way through 2021.

At times, it seems like 2020 never really ended, with the first five months of this year characterised by a seeming start-stop-start-stop approach to reopening the global economy, with vaccination rollouts competing with continued COVID-19 outbreaks around the world.

Australia, despite our “success” (or should we say luck) in limiting the spread of COVID-19, is well and truly caught up in this trend, with Victoria entering yet another lockdown this week.

Meanwhile, our chances of meaningfully opening our borders to international visitors continue to be hampered by our incredibly slow vaccination rollout, which lags behind almost all developed market countries, with some analysts now expecting we won’t be opening the borders until mid to late 2022 at this stage.

Whilst stock markets have by and large looked through the continued disruption caused by COVID-19, there is no doubting there will be a price to pay at some stage.

Astute investors are preparing for this already, which is one of the factors propelling pink diamond demand, and pink diamond prices, higher in 2021.

Mainstream investors are stuck!

The way we see things at Australian Diamond Portfolio, mainstream investors with all their money in traditional assets are stuck, with a plethora of market forces that could negatively impact their wealth in the years ahead.

And whether it be higher inflation, an increase in taxes, reductions to government spending, or just a major bear market in shares or residential property in the years to come, there should be no doubt that the economic dislocations that have been building in the past decade, which were exacerbated by COVID-19 will come to the fore eventually.

No matter which way things play out, most investors are not well prepared to protect, let alone grow wealth in the years ahead.

If governments and central banks realise they can’t, or should we say shouldn’t, continue to print money and go into debt at the rates that they have been, then interest rates may rise (good if you have money in the bank), but asset prices from the share market through to the property market are going to crash.

If government and central banks decide to continue racking up vast levels of unpayable debt, they’ll have to continue printing money to fund it.

This might prevent a serious crash in equity and property markets, but it will eventually impact investors anyhow, with an inevitable increase in inflation over time.

And as per the chart below, whilst there are some who think high inflation is good for the share market, the data (look at the blue line) actually tells us that stocks have basically delivered no real return in periods of high inflation.

As such, whilst they might not fall in price, they do tend to fall, or at best tread water, in terms of value.

Equity returns are radically different in different CPI environments
US S&P 500 Comp excess returns under different inflation/disinflation environments

Chart of equity returns in different CPI environments

Source: Gavekal Research/Bloomberg, Shiller data.

The recent volatility in cryptocurrencies and other more speculative assets also serves as a clear reminder to investors that money printing alone doesn’t mean all assets will go up in price.

Instead, investors need to be incredibly discerning, concentrating at least a part of their portfolio in the assets best placed to outperform should inflation rates press higher in the years to come, as they well might.

As we’ve highlighted on many occasions in these reports, there is no asset class that is more suited to thrive in such conditions than pink diamonds.

Pink diamonds – the attention is building

In the weeks and months ahead, we expect there to be an increased amount of media coverage of the pink diamond market.

There are a number of reasons for this, including the attention the last ever Argyle Pink Diamonds Tender, which Rio Tinto announced on the 18th May this year, will get.

The diamonds from that Tender, titled; “The Journey Beyond”, will be showcased in multiple cities, including Sydney, where Australian Diamond Portfolio are headquartered, in the coming months ahead of bids closing, on the 1st of September.

The one-year anniversary of the closure of the Argyle Diamond Mine itself, which will be in November of 2021 will be another newsworthy event, whilst the records being set for diamonds sold under the hammer, including the recent auction of the Sakura Diamond, which recently sold for US $37.7 million, will also continue to attract attention.

All of this is positive for the pink diamond market, and the awareness that is building in the minds of more and more investors everyday about the unique opportunities this asset class offers.

The elevated levels of demand that we are seeing at Australian Diamond Portfolio, which really kicked into gear in 2020 and have continued through this year, combined with the clear restrictions on the supply front are already having a meaningful impact on pink diamond prices, with our global trade partners all also speaking of the higher demand they are seeing.

We expect these trends to not only remain, but indeed intensify in the months and years ahead, which is why we continue to expect pink diamonds to be amongst the most profitable investment opportunities available in the market today.

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.


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