Buying diamond or gold jewellery? Find out which is a more profitable investment for you
Diamonds are bought more as an adornment than investment, but preferences are now changing
Dubai: Historically, gold has proven to be a preferred choice of jewellery and investment, but in recent years, more buyers have been opting for diamonds over the yellow metal. So does that mean gold is losing its shine and diamonds are now proving to be a better place to park your savings?
“Even though gold still asserts dominance as a hedge against economic uncertainties and as a better store of wealth over time, diamonds often sell for a higher price,” said Georgina Effel, a Dubai-based precious metals retail analyst. “But again, it all depends on the diamond's characteristics.
“While diamonds too have the ability to hold their worth, that’s true only in the long run. So realistically, how do you choose between the two? The rule of thumb is if you're looking for a safe investment, go for gold. If you wish to gain higher resale value, diamonds are the option.”
Why don't diamonds have the same resale value as gold?
The difference in resale prices is because gold prices are standardised, but the price of diamonds are not. So while a gram or ounce of gold, with a purity of 22-karat or 24-karat, will cost nearly the same anywhere in the world, there are no such benchmark prices in the case of diamonds.
“The price of gold fluctuates because of various factors such as supply and demand, inflation and other economic conditions. Diamonds, on the other hand, are subject to subjective valuations based on various factors like cut, clarity, colour, and carat weight,” Effel explained.
“This is why gold is less volatile than diamonds. Being luxury goods, they are also subject to changes in interest and fashion trends, which in turn affects the prices in the near term. Such factors can affect the value of a diamond jewellery more significantly and dim its prospects as an investment.”
Diamonds are bought more for adornment than investment
Just as gold jewellery has always been seen more as an adornment than it serves as an investment that appreciates in value, there has been a growing preference among customers to see diamond jewellery as a gift more than it is seen as a store of wealth.
“You can consider investing in diamonds from a long-term perspective as demand is only likely to grow, but as diamonds are bought mostly for adornment purposes than it is to grow your money in the future, appetites need to change,” said Zubair Shakeel, a UAE-based investment manager.
“Also, while diamonds can increase in investment value in the future, until which time you can hold on to them, investing in diamonds can be a little complicated, and buying or selling diamonds may be more tricky than investing in something like gold or silver.”
Know the key downsides to investing in diamond jewellery
1. Lack of transparency in pricing
As mentioned briefly above, when you invest in gold, you can look up the day’s prices and buy gold bullion with a standardised value, but when it comes to determining the cost of diamonds, the process is not as transparent. This risk is more apparent with smaller diamonds, Effel cautioned.
“Compared to gold, transparency in diamond pricing need to catch up a lot. If you are absolutely keen on buying diamonds with investment as the objective, you should look at buying diamonds one carat and above,” she suggested. “Smaller diamonds are unlikely to fetch worthwhile prices.
“In order to understand whether you are overpaying for a stone or not, you can only compare similar stones from other suppliers or dealers. However, even in this case, it will certainly be quite difficult to understand for sure.”
Even though gold still asserts dominance as a hedge against economic uncertainties and as a better store of wealth over time, diamonds often sell for a higher price
2. Buyback policy varies with each jeweller
Although you’re likely to get a higher resale price for diamonds than you will for your gold jewellery, a risk that comes with that is finding a jeweller that buys back your diamonds at a discount, while also not charging you a lot for it being used.
“The buyback policy will vary from jeweller to jeweller when it comes to selling you diamonds. For instance, a solitaire will ideally fetch up to 95 per cent of the market value, but this figure could come down to as low as 85 per cent in case of smaller diamonds,” added Effel.
“While some could offer higher buy-back value for diamonds bought from them, the returns could drop to 30-35 per cent in other cases, depending on the buyer’s opinion of the stone and usage. So enquire about their policy before the purchase even if you do not intend to sell.”
White colourless diamonds are the most popular. Their colour grade is ranked from D to Z, where D means total transparency, while Z stands for the presence of colour. Investment stones are those from D to H. Fancy coloured diamonds are much rarer, with red, blue and pink diamonds considered to be the rarest. The higher their colour intensity, the more valuable they are.
The larger the weight, the more valuable the stone (in case it has other characteristics of the highest grade). The cut is responsible for the sparkle of a diamond. Looking for investment stones, pay attention to those that are ranked ‘Excellent’. Imperfections influence a diamond’s value significantly, so the clarity of high-value stones must be ‘Flawless’ or ‘Internally Flawless’.
Key takeaways
While some believe the diamond or diamond jewellery does not retain its market value, in actuality, diamond stones have resale value, but the cost is highly dependent on factors other than market fluctuations due to demand.
Similar to buying gold, industry experts also often reiterate that buying diamond jewellery is not a get-rich-quickly plan. While diamonds can be a reliable investment option in the longer term, only under specific requirements.
“Diamonds increase in value over time and don't offer short-term results. In fact, like other physical commodities, the price of diamonds fluctuates from time to time. The next mistake people often make is to pay too much, which loses them money in the longer run,” added Shakeel.
“Also, gold comes with lower maintenance costs, but diamonds require periodic inspections, cleaning, and potential repairs, which adds to the overall cost of ownership. It’s also difficult to determine when, how much and for which stone the price will rise in the future.”
The key then, the experts add, is to let your budget be distributed among different types of diamonds. Perhaps each of them will be a great investment – or only one of them will pay off all your investments in the future.
Bottomline: While gold and diamonds both appear relatively stable among the many investment possibilities, which of the two assets is the better option? Even though gold is often valued more over the long run, diamonds have a higher profit margin if you sell them. So, if you’re seeking a secure investment, choose gold, and if you want to increase the resale value of your possession as a long-term investment, opt for diamonds. But consider the risks.