Earlier this week we shared a fantastic article in the South China Morning Post (accessible here) which looked at the pending closure of the Argyle Diamond Mine and discussed the implications for prices in the years ahead.
In this report we wanted to share some specific sections of that article, starting with the following extract, which is sourced directly from it.
The article touches on several themes that will be familiar to clients of Australian Diamond Portfolio, notably the fact that the Argyle Diamond Mine is scheduled to close in 2020, and once it does, there will be a roughly 90% reduction in the number of new coloured diamonds that will come to the market each year.
Astute investors are already buying in anticipation of the price gains this will likely lead to in years to come. Diamond insider, Harsh Maheshwari of Kunming Diamonds, was quoted in the article, where he noted that since the second half of 2019, a number of jewellers have reported a level of requests for Argyle pink diamonds that they had not seen previously.
This aligns with what we have seen first-hand at Australian Diamond Portfolio, with a large increase in the number of clients wanting to either buy their first investment grade pink diamond or add to their existing collection in the last twelve months.
Maheshwari went on to note that “since early February, the global diamond industry has been adversely impacted. However, with the imminent closure of the Argyle mine, and the rarity of such beautiful gems, Argyle pinks have been insulated in this environment.”
In the current economic climate, given the volatility in most financial markets, that is no small achievement, with this price stability and strong demand giving more and more investors confidence that the pink diamond market offers unique opportunities in the years to come.
Another commentator noted that “Since the Argyle pink diamonds have been analysed in terms of pricing they have never reduced in price and in last few years the speed of increase has been amazing.”
“Again, one can only use logic in terms of a limited supply of a highly sought-after product now ceasing to produce at all. It aligns itself to a fine artist whose works are sought-after but who no longer produces new pieces”
This very much aligns with the thoughts we shared in our 2019 special report into the closure of the Argyle Diamond Mine and the implications it will have on the market.
In that report, we stated that pink diamonds are in essence natures highest form of art, and the pending closure of the Argyle Diamond Mine would be a likely catalyst to kickstart another multi-year increase in pink diamond prices.
Expect a prolonged downturn in Australia
Like all Australians, I’m looking forward to the easing of restrictions on movement and will be hoping to celebrate my daughter’s second birthday with a small party over the weekend.
Whilst we all hope the worst of the COVID-19 threat is behind us from a health perspective, it becomes clearer every day how big an economic challenge is ahead.
CBA has released research predicting that the country will have lost 550 thousand jobs in April, with an expectation that the unemployment rate will rise to 8%. Leading financial market commentator Terry McCrann has stated that unemployment in the private sector is now approaching 30%.
Further evidence of the challenge ahead was seen this week with the release of the NAB business survey, which showed confidence and conditions plunging by the most on record (see chart below), with capacity utilisation, capital expenditure plans and forward orders all collapsing.
NAB Business Survey
Business Confidence and Conditions
The rental market for property has also cratered, best seen through the number of vacancies in inner city Sydney, Melbourne and Brisbane. In March 2020 the vacancy rates in these areas averaged about 5.5%, but by end April it had more than doubled, with rental prices in Sydney for example now falling over 6% in the last year.
This weakness in the property market will only get worse for the foreseeable future, with Westpac stating that from May 17th, they’ll “cease accepting loan applications from a swathe of potential borrowers, including small business owners and independent tradespeople who want to fund 80 per cent or more of a residential property purchase through credit.”
The dire outlook for property, combined with the obvious risks in the share-market as the economy enters recession, and the fact that low interest rates and continued money printing will be with us for years to come reinforce the reasons why Australian investors need to protect and diversify their wealth with hard tangible assets.
Of all the hard-tangible assets to choose from in the years ahead, none will be rarer nor more highly prized that pink diamonds.
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.