08 May 2019

Steady Performance for Pink Diamonds as Trump Threatens China

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).

The situation will not have been helped by the latest tweets from US President Donald Trump, who over the weekend threatened to increase tariffs on USD $200bn worth of Chinese imports from 10% to 25%.

“The largest trade war in economic history”, as it’s being called, isn’t going away anytime soon, and as its implications are felt in the economy and in other markets, it’s going to drive demand for discrete tangible assets like rare pink and blue diamonds.

Unlike the GFC, which Australia was fortunate enough to get through, we aren’t going to be as lucky this time. It’s not just that Australian house prices continue to fall, but our services sector, which is by far the largest employer in the nation on aggregate, is seeing wages fall, job losses and less hours worked for those lucky enough to keep their jobs.

This weakness in the Australian economy has been building some time now, and it’s one of the main reasons why the Reserve Bank of Australia (RBA), though they kept interest rates steady at 1.50% this week, will almost certainly cut them in the months ahead.

It’s worth remembering that when the GFC hit, the RBA “only” had to cut interest rates to what was then an all-time low of 3%. Here we are, some 10 years on from the end of the GFC, and they are already 1.50% lower than they were then, with rates on track to fall again in August.

The fact that this is happening is a pretty clear warning sign that:

  1. there are serious problems in the local economy
  2. smart investors should continue to seek wealth protecting assets

Rare coloured diamonds are one such investment that stands to benefit as these trends play out.

 

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