The below article originally appeared in The Australian. The original version of this article can be viewed here.
Although we live in the digital age, investors are willing to pay big money for certain old world assets with recent auction results producing staggering prices for rare gemstones.
The Williamson Pink diamond, originally gifted to the late Queen Elizabeth I for her wedding and later inspiring the original Pink Panther movie, was sold at auction last month for just under $100m. In a separate Christie’s auction, the world’s largest pear shaped pink diamond known as The Fortune Pink sold for more than $40m this month.
Rio Tinto’s West Australian Argyle mine has been the premier source of pink diamonds, producing 865 million carats including 90 per cent of the world’s pink diamond production. Although the mine closed in 2020, there has been no slowing in the price of pink diamonds.
In the 10 years leading up to the mine’s closure, pink diamonds doubled in value and since then prices have accelerated further, up another 50 per cent over the past two years according to the Australian Diamond Portfolio’s Pink Diamond Index (ADPPDI).
While many have heard about the rarity of pink diamonds, few are aware that there is an even rarer type of diamond found from the Argyle mine. Anna Cisecki, executive director at Australian Diamond Portfolio Group, a Sydney investment diamond brokerage firm specialising in rare diamonds says: “The Argyle mine which was the world’s most prominent red diamond mine only ever produced around 60 carats of red and purplish red diamonds.”
This is literally a handful of red diamonds in 40 years of production. As such, sales of red diamonds are few and far between and have been fetching strong prices when auctioned.
Cisecki says: “A 1.21 carat fancy orange-red diamond sold recently for $2.7m in America even though the pre-auction estimate was only $225,000. In other words, strong buyer demand resulted in a sales price that was 12 times higher than the estimated market value.”
Diamond prices are all about the simple principles of supply and demand: If supply remains constant and demand increases, prices go up. Cisecki predicts that “a robust secondary market will emerge with the remaining red diamonds in the world and the investment story is far from over”. She says SMSF investors have made up the majority of buyers for the ultra rare red diamonds.
If you would like to add a gemstone to your portfolio there are options outside the million dollar range.
Alice Wong, owner and jewellery designer at Sydney’s Lovelle Jewellery, says: “Prices of most gemstones have gone up since Covid due to mine closures and production shortages. For instance, the price of opals has increased by 30-40 per cent per year since Covid while other gemstones are seeing 10-25 per cent price increases.
“But of course, as supply eventually normalises the sharp price gains we have seen in recent times are likely to moderate and revert to longer-term growth rates of between 5 to 10 per cent per year.”
But even with lower growth expected, Wong still feels the outlook for gemstones is strong: “People will always get married and demand natural white diamonds in the best size, colour and clarity that their budget permits. The demand for colourful diamonds in jewellery has also increased in recent years driven by the younger generation who are priced out of the traditional white diamond in the size they desire. “
For a $10,000 budget and a 10-year investment horizon, Wong recommends getting an emerald otherwise a blue or teal sapphire. But her top pick in this price point is a pigeon blood ruby which has been in high demand.
On a $50,000 budget, Wong suggests a colourful fancy vivid diamond. Colourful diamonds have become popular as an alternative to pinks where people have been priced out of the rare pink and red stones but still want to own a diamond. Wong’s pick of the bunch in this price point is a yellow diamond.
For those with deep pockets, Wong suggests that if $500,000 is allocated to gemstone investment, it should be invested in the best quality white diamond money can buy with internally flawless clarity and the whitest ‘D’ colour properties.
“With any gemstone investment, it is all about quality. Focus on clarity and colour before size as this will result in a better resale value down the track. Certification of the gemstone from a reputable gemological institute such as GIA or AGS is also a must.”
But like all growth investments, there is no such thing as a sure thing. Investor preferences may change and what you thought would be an inflation-proof defensive portfolio hedge may end up being a dead weight on your balance sheet.
Take pink diamonds for example, although new supply has dried up with the closure of the Argyle mine and prices have surged, Wong recommends investing with caution.
“Although I am a big fan of pink diamonds, looking at them objectively, at some point people will stop bidding up the prices and switch to other more affordable alternative fancy colour diamonds such as yellow, orange and green diamonds, which are much cheaper but just as nice to look at.”