01 Feb

The more things change

It’s hard to believe that it is already February.

On behalf of the entire team at Australian Diamond Portfolio, we hope that you enjoyed a lovely and refreshing break over the Christmas and New Year period and had a chance to enjoy a festive time with family and friends.

We also wish you every success in 2023 and look forward to helping those of you that would like to invest in pink diamonds this year, either as a first-time purchaser, or as a client adding to their portfolio, as so many of you have done over the many years we’ve been in business.

In this first market update of the year, we highlight the continued strength of the pink diamond market, evidenced through an exciting announcement by luxury jewellery and specialty design house Tiffany’s.

We also discuss why three key themes that dominated the markets last year are set to stay front and centre in 2023, and why this bodes well for pink diamond demand going forward.

Pink diamond market starts the year with a bang!

As regular readers of these updates will know, pink diamonds have been a market leading asset over the past fifteen to twenty years, growing in value by 600% or thereabouts over this time period.

Pink diamond outperformance relative to traditional assets has only become more pronounced in the past two years, driven by two primary factors:

  • Higher volatility in assets like shares, and the return of higher inflation, driven by the COVID-19 pandemic and its aftermath.
  • The closure of the Argyle mine in late 2020, a genuine end of an era moment which instantly eliminated more than 90% of the newly mined supply of pink diamonds that had previously been coming to market.

The latter of those two elements has been particularly important, with investors realising that the window to buy freshly sourced pink diamonds would soon close.

Despite the sharp reduction in new supply, the health of the pink diamond market has gone from strength in strength since late 2020, with a number of developments, from the launch of the icon programme, to our very own Legacy Collection highlighting the longevity of these assets.

This week we saw more evidence of the continued strength of pink diamonds as an investment, with luxury jeweller and speciality design house Tiffany’s announcing that they had purchased a bespoke curation featuring 35 of Argyle’s last pink diamonds.

Commenting on the purchase, Sinead Kaufman, Chief Executive, Rio Tinto minerals, noted that “We are delighted that this collection of rare Argyle Pink™ Diamonds, with their extraordinary Australian provenance and a story that began one and a half billion years ago, is now entrusted to the unrivalled craftsmanship of Tiffany & Co.”

News like this only bolsters our confidence in the outlook for pink diamonds, which are set to sparkle (pun intended) in 2023 and beyond, with investors continuing to gravitate toward these unique, exceptionally finite, and exquisitely beautiful assets

Interest rates, inflation and housing

Three themes dominated the investment landscape last year.

  • The rapid increase in interest rates that we saw all across the developed world, including in Australia, with the Reserve Bank of Australia hiking rates from 0.10% to 3.10% across the course of 2022.
  • The surge in inflation that occurred across both the developed and developing world, with inflation rates topping 9% in the USA at one point, more than 10% across parts of Europe, and close to 8% in Australia.
  • The rapid fall in house prices, which comes after what was a huge surge during the pandemic, with real estate prices for example rising by almost 30% between 2019 and 2021 in Australia.

As much as many people will quite understandably wish that these three stories will only be remembered as 2022 phenomena, the reality is likely to prove quite different, with all of them set to influence policy makers, and market activity for the foreseeable future.

In Australia, inflation rates surprised to the upside in the December quarter, while prices for key commodities like oil, are again marching higher, after pulling back for a period in late 2022.

This puts additional pressure on central banks around the world to continue to hike interest rates, to really kill off the inflationary threat.

The RBA is not immune to this, and they are certain to raise rates when they meet for the first-time next Tuesday, with markets now currently suggesting the cash rate will peak at almost 3.80% in September this year.

All of this will continue to pressure home prices lower, with residential property in Australia already down almost 10% across the main capital cities, led by Sydney.

CoreLogic Home Price Indices

*As at 29 January 2023. Source: MacroBusiness.

With more than one million Australians already facing mortgage stress, and with record numbers of mortgage holders set to see previously low rate fixed loans switch to much higher interest variable loans in 2023, expect this to get considerably worse before it gets better.

Add all this up and it paints a very challenging picture for those wanting to build wealth through real estate, while the impact that rising mortgage stress is already having on confidence and consumer spending can’t help but negatively impact the stock market in time.

Given these headwinds, it’s also clear why alternative assets like pink diamonds will continue to find favour amongst investors, given their genuine scarcity, and their track record of continuing to offer stability and growth in challenging market environments like the one we currently face.

As always, we hope you’ve enjoyed this week’s edition of “In the Loupe” and we look forward to any questions or comments you may have.


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