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Tuesday 29 April 2014

Diamonds v/s Stock Markets

Diamonds have always drawn our eyes to them as symbols of eternal love and fealty. The reality of the world economy now though is that with market fluctuations ruling the roost and many countries still struggling with the impact of the worldwide recession, people’s faith in the stock market is seen to be failing. People around the world are looking at newer avenues for investment and without a doubt, traditional safe havens like gold, property and other tangible assets are prized more than stocks these days.

According to a paper by economists Scott and Yelowitz, diamonds are appreciated not only because of the (conspicuous) consumption utility they provide, but also because they are a store of value. After the recent auction sale of a pink diamond for the record price of 45.75 million USD, a jewelry expert commented that, ‘‘nobody knows what they are buying with stocks, but here they are buying something solid and tangible.’’

Recent surveys by Capgemini (2010)and Barclays (2012)confirm that, in times of
crisis, high-net-worth individuals are drawn to real assets that are perceived to have high intrinsic value. Nearly one third of the owners of precious jewelry interviewed by Barclays indicated to own the asset to provide security should other investments fail.

The above examples are unanimous on one simple fact: People have lost their faith in the stock markets post the global economic meltdown. In this sort of an environment, many investors are looking back to more traditional kinds of investments, that in their eyes for whatever reasons will not fail.

Let’s take an analytical look at the major difference between diamonds and stocks as investments:

Are perceived as storehouses of value.
Have an inherent value which can fluctuate given market conditions
Are rare and therefore are more expensive to purchase
Are a lot more affordable, can be bought by anyone
Their rarity ensures that people who invest in them recover their investment and make a clean, tidy profit on their sale as well
Stocks make a sound investment if the market conditions are favourable, people can make a good profit off them, but again any slight change in market fortunes could derail one’s investment
Are tangible, and can be worn and therefore are an endowment that can be transferred in the form of gifts and heirlooms
Are intangible and in some cases non-transferable, do not make gifts and in the current economic condition are not safe bets
Along with gold and property, diamonds are looked at as stable investments which could easily be vaulted and banked on for a rainy
Were looked at as a way to make a decent amount of money before cashing in. These days though, they aren’t considered all that lucrative. Could be a passing phase though
Are always contemporary or relevant, whatever the prevalent ‘economic’ environment
In the current economic scene are looked at with cynicism and great caution by people in the know about investments

The current trend of investing in safe havens can be traced back to the early to mid seventies as is seen in the following excerpt from Renneboog and Spaenjaers, Financial Letters (2012):

“The uncertain economic climate of the late 1970s and the early 1980s, there was increased
demand from investors for tangible but easily storable assets, such as gold (Ibbotson and Brinson,1993), stamps (Dimson and Spaenjers, 2011), and gemstones. Diamond investor manuals (Sutton,1979; Dohrmann, 1981) elaborated extensively on the advantages of investing in diamonds, claiming that diamonds have a track record of centuries of steady price appreciation.”

This quote makes it apparent that the mistrust of the stock market may not be just a passing phase but to many investors has been around for quite a while. 

Wednesday 16 April 2014

Can diamonds be an investor’s best friend?

The allure of the diamond is a hard thing to resist. Ask James Bond, or Marilyn Monroe and two answers you may get are ‘Diamonds are forever’, and ‘Diamonds are a girl’s best friend’. What about as investments though? While many investors think that diamonds are a bit of a ‘sure thing’, like precious metals, fact of the matter is that investing in diamonds is more a tricky business, that needs skilled planning and due diligence, lest an investor see his investment go belly up!

Why are diamonds so tricky as an investment?

The very fact that every diamond is as unique as the possessor of the stone, proves to be a rather difficult problem. Says trade analyst, Randall Clarke, “When it comes to diamond, each diamond is as different from the other as chalk is fromcheese. This makes setting a common trading price for diamonds highlyimprobable, if not impossible.” The lack of a common trading price or standard price, like in gold or silver, makes tracking prices of diamonds, extremely difficult.  

The purity of a diamond is also determined by the 4Cs. Now each diamond has its own unique, cut, color, carat weight and clarity, this makes it virtually impossible to find the perfect stone to compare all other stones to, let alone invest in.

Change in trends:

With the world economy in a slowdown mode, what were considered traditional powerhouses in terms of return on investment, like high yield bonds and long term fixed deposits and mutual funds, have taken a beating of sorts. High net worth individuals are now looking at non-traditional means of investments, which can also be enjoyed at the same time. Be it wine, art, gold or real estate, the returns in these, non traditional sources, is all of a sudden more attractive and by all means more enjoyable than the ‘waiting game’ that traditional investment sources of investment entailed.

When such a paradigm shift is slowly occurring, diamonds are the most logical next hottest investment destination. The roadblocks in such an investment option however, mean that diamonds aren’t yet the new currency of trade in the world. Clarke chips in, “Until the Securities and Exchanges Board, can determine a way, where diamonds can be traded in paper securely, over a Stock Market, something like a Diamond Exchange Traded Fund (ETF), the returns on investment will be more difficult to standardise and predict, making trading in diamonds a much riskier proposition.”

Mark up prices:

The reality of the matter is that unlike gold, oil, or property, diamonds are still traded in bourses across the world, by people who are old hands in the trade. The diamond trade is possibly the only one in the world that still relies on the ‘honor’ system, which dictates that a man’s word is his bond, and that reputation is something one must go by. Industry insiders say that every time a diamond changes hands, it’s price increases. From a polisher to a trader, the price can go up anywhere between 5% and 25%. This means that a stone bought from a trader, could have been obtained from a polisher for a fraction of the cost. Says Clarke, “People keen on buying diamonds would be well served to have an ‘in’ with a polisher. But since this luxury is not afforded to everyone, the reality of the matter is that diamond prices are what they are and they aren’t changing anytime soon. Hence the need for a market backed ETF which standardises both the prices of and the returns on diamonds.”   

Thursday 27 March 2014

New York: The best place to buy diamonds: Part II

Our last article dealt with the way in which the deals are done for the stones that finally end up as the showstoppers in your favourite jewelry. We also read up about how the Diamond District in New York came about. This article will look to find the main reasons why NYC is the best place to buy your diamond jewelry.

Why NYC is the best place in the world to buy diamonds?

There are few places on earth that can go toe to toe with the Big Apple on any and all parameters. If Paris is the gateway to European trends and fashion, Milan is the cutting edge fashion capital of the world and Berlin is where the avant-garde resides… NYC is by far the most cosmopolitan, stylish and all encompassing city of them all. Little wonder then that NYC is one of the world’s top shopping destinations.

Saks 5th Avenue, Barney’s and Sears are just some of the most iconic shopping meccas in the world. The Upper East Side and the Village are hubs for the uber stylish to attend the latest in gallery openings. Not to mention the culture and art scene characterized by Broadway and Manhattan. Why then would this not be the perfect place to buy diamonds.

1) You are always assured of new styles: NYC is one of the trendsetters in world fashion, by default then, if there’s something particularly offbeat and eye catching you seek, this will be the best place to get it! Fashion stylist Anne Bryce, has this to say, “when you think about style and fashion, there are few places that compare to New York. With a vast majority of diamonds in North America passing through NY’s diamond district and the sheer number of establishments dealing in fine jewelry, it is almost assured you’ll find the best pieces here!”    

2) There’s something for everyone: New York has something for everyone, in every sense of the word. If you have a good time in mind, you could easily dine at the some of the world’s best restaurants here, if you have the budget for it. Or you can simply grab a hotdog in Central Park or Riverside. This is true in the case of diamonds as well. Whether you want your lady to have a rock that will bowl her over and make her the envy of her friends, or you’re looking at a modest sized stone, the diamond district will have something for either end of the budgetary spectrum.

3) It is called the Diamond district for a reason: If you’re thinking about range, picture this, almost 2600 establishments, from the uber chic to the family owned jewelry businesses, to firms that specialise in estate jewelry, the Diamond district has them all! It is after all called the Diamond District!

Things to beware of when shopping for diamonds in NYC
      Bright light makes everything white: Examine the diamond in the natural light of day, outside the store to be sure of its true colour
      Heavily marked down prices: If the price of a diamond is too good to be true, it probably isn’t, beware of heavily marked down prices
      Always ask to see the GIA certification of the diamond: GIA certified diamonds are worth the price, because you’re paying for what you can see in writing
      Beware of fake, artificial or lookalike stones

We hope these tips will help you buy right and avoid being duped. Do let us know your feedback in the comments section below.

Monday 24 March 2014

The Big Apple: New York’s Bling Connection: Part I

New York. One word that brings to mind all the sights it is famous for, the Statue of Liberty, the Empire State Building and the famous Rockefeller Centre. Little does one know that this city of nearly 13 million people is also one of the world’s leading centres of the diamond trade. Along with Antwerp in Belgium, London, Paris and Munich, New York is one of the leading cities in terms of buying and selling diamonds. Before exploring the city’s diamond district, it would be quite beneficial to understand the way in which the diamond business functions.

From the mine to the bourse:
We all know that diamonds are nothing more than carbon atoms that have withstood tremendous pressure for millions of years. Now for the more ‘practical’, business part of the transaction. De Beers is one of the world’s largest diamond manufacturers and the foremost diamond mining and supply house. Commercial jewelers and others purchase their diamonds from wholesalers like De Beers. Most of the world’s rough diamonds pass through bourses in Antwerp. This is where representatives of most of the commercial jewelry houses seek out traders and settle business with them. The entire transaction takes a short time and is completely based on the rapport a representative shares with a trader.

From the bourse to the polisher:
Once purchased, rough diamonds need to be polished and cut in order for them to be set in pieces of jewelry. Most of the world’s diamonds are cut and polished by skilled artisans in Surat, India and some other places in Europe. Surat is one of the world’s most precise and sought after diamond processing hubs, because of the high level of skill and finesse of its artisans. It is said that the fashioning of a diamond into a gemstone is a science and an art, that is handed down from one generation to the next here.

From the polisher to the jeweler:
Once polished the diamonds are dispatched to jewelers who fashion stunning ornaments for the consumer. Based on trends, popularity, demand and customer requests, design of the jewelry is determined. The rarity of the diamond, its size, the clarity and cut of the stone and its carat weight, determine the price of the piece of jewelry.

New York’s diamond district:
New York City's Diamond District, also known as Diamond and Jewelry Way, is located on 47th Street between 5th and 6th Avenues. It's hard to believe, but the area is home to over 2600 diamond businesses, many of which are located inside of the street's 25 jewelry exchanges. Each exchange is home to about 100 different merchants, each independently owned and operated, but there are also larger stores along 47th Street for shopping as well. In the Diamond District, you can find just about any type of fine jewelry you desire, which makes it a great place to shop, and prices can be as much as 50% off of retail. The shops cater to both wholesale and retail clients, but you'll have the best success shopping if you've done your research and know what you're looking for.

History of New York’s Diamond District:

New York's first diamond and jewelry district was actually located on Maiden Lane, beginning around 1840. Today, the Diamond Dealers Club, the largest diamond trade organization in the U.S., is headquartered on 47th and Fifth Avenue. Originally located on Nassau Street, membership grew after World War II as many diamond dealers immigrated from Europe, necessitating a larger location, and thus its move uptown to 47th Street from its original downtown location. The move established 47th Street as New York's Diamond District, where businesses handle everything from the importation of rough diamonds to production and sale of fine diamond jewelry.

Monday 10 March 2014

Shiny pieces of eternity: Part II

The romance of jewelry is a well documented love affair. Do you remember watching a movie, in which the protagonist does not propose marriage to his beloved with a diamond? Jewelry, people say, helps us express those emotions, that we cannot express with words. How though, did this trend come to be? In our first part, we examined the evolution of jewelry from the ancient to the middle ages. This part will continue that trend and also answer the question, who invented the trend of proposing with a diamond ring?

In the medieval times:

The medieval times were among the darkest times in human history. Also known as the dark ages, they were a time of religious persecution and oppression. It was also at this time that the world got its first taste of quality jewelry. The Turks having conquered Constantinople, in 1453, had barred the land trading route between Europe and Asia. This fuelled the era of  European seafaring, in the hope of finding an alternate route to the Indies and Asia. It was around this time that Christopher Columbus accidentally discovered the continent of America and with it, her vast untapped mineral reserves became available to the Europeans for the very first time.

From the ‘new’ world came vast quantities of gold, newer unexplored minerals and stones like jade and rubies. This led to a boom of sorts, where newer and more intricate jewelry started being fashioned for the wealthy, those of aristocratic leanings and for kings. The story of how Louis XIV had his royal jeweler fashion a new cut of diamond shaped like his amour’s lips is legendary. So was the Russian Royal family’s obsession with the famed Faberge egg.

But probably the most famous of all the royal associations is that of the British Royal family’s with the Kohinoor. Arguably the most famous gem in the world, the Kohinoor was acquired by Queen Victoria, after the Queen’s proclamation of 1858, that formalised British rule in India. The Kohinoor was part of the reparations the Indians were levied with for inciting and participating in the Sepoy Mutiny of 1857. A list of the owners (erstwhile) of the gem is a virtual who’s who of world history, from Nadir Shah, to Shahjehan and then the Queen of England.

In modern times:

Jewelry has evolved to being more of a style statement today. “Diamonds and rap have become almost synonymous. The bling tradition, where the more ice you have on your person means the higher your social standing is a direct correlation between hip-hop and diamonds,” says Lydia Dunham, a celebrity stylist, “Some of the biggest consumers of diamonds are the modern royalty, like movie stars and A-list celebrities.” Today, you aren’t in love until and unless you are displaying a one-of-a-kind diamond ring. This trend was popularised by the De Beers Diamond Company. Likening diamonds to eternal love was a marketing masterstroke. Infusing popular culture with diamonds saw the golden age (pun intended) of the trade come into being. The line, “Diamonds are forever”, changed the way we perceive diamonds.

Jewels in popular culture have been celebrated as the ultimate symbols of love. So much have they pervaded our lives that we’ve named movies, books and even children after them. The use of jewelry these days is, as a unique reflection of your personal. There may have been wars fought to secure jewels, but for one thing, they will always remain an intensely personal experience!

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