Diamonds have long been considered items of value and have been traded since pre-historic times. Unlike gold however, diamonds are not considered a safe haven in times of financial crisis, although they have proven useful during times of hyperinflation.

The market price of diamonds has historically been controlled by the De Beers Group which has a 40% to 50% market share. De Beers have a system known as ‘sights’ with the sight holders being offered diamonds on a take it or leave it basis, thus keeping diamond pricing firmly in the hands of De Beers.

Approximately 50% of the world’s diamonds are mined in Africa, with Botswana being the largest producer. The rest come from Canada, India, Russia, Brazil, and Australia.

Unlike precious metals there is no set market price per gram for diamonds although the industry does refer to price guides such as the Rapaport Diamond Report and The Diamond Registry Wholesale Diamond Price List.

The price of polished diamonds can vary a great deal depending on what is known as the 4 Cs;

  1. Carat;
  2. Colour;
  3. Clarity;
  4. Cut.

Knowledge of these 4 Cs is essential if you wish to invest in diamonds by physically buying them.

How to invest in diamonds?

A much more common way for people without specialist knowledge to invest in diamonds is to use an investment vehicle such as a diamond fund. There are a few funds that invest in diamonds. The fund will purchase unique, expensive diamonds and then resell them for a profit, sharing the yield among the investors.

Diamond prices can fluctuate wildly. In 2004, for example, the De Beers Trading Company raised wholesale diamond prices three times by a total of 14%. Between 2007 and 2008 the price of a diamond from the top range of the 4 Cs rose by over 50%.

One way of investing indirectly in diamonds is to buy shares in a diamond mining company. Currently the world’s largest diamond mining company is Russian company Alrosa, but as this is government owned it is not listed on the stock market. In the UK the leading diamond brokerage is Rare Diamond Commodities.

Until recently one of the perennial problems with diamond investment was liquidity. Unlike most commodities diamonds never had a terminal market or commodities exchange clearing house. In 2009 however the DODAQ exchange was launched to trade certain categories of polished diamonds. DODAQ is intended to act as a terminal market for certified diamonds. This development may go some way to improving the liquidity of diamonds and making them a more suitable and accessible investment for the individual investor.

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