Gold and diamonds are often thought of as being more than just ornamentation for jewelry. They are also thought of in many cultures to be symbols of wealth and status. For some, they are even investment vehicles that can help increase and preserve individual wealth.
So, this also begs the question, which is better as an investment gold or diamonds?
What Are The Pros And Cons Of Diamonds As An Investment?
The gleam and luster of diamonds is something that has attracted human beings since the early days of civilization. Modern improvements in cutting diamonds into clean, crisp facets have also helped to increase their aesthetic and actual value.
When it comes to investing in diamonds, you need to keep in mind that the majority of these precious stones may not fully reflect your financial investment. The driving force behind this is somewhat diverse and complicated.
Throughout the 20th-century marketing campaigns from various diamond and jewelry companies like De Beer’s did a very good job of encouraging couples to embrace the notion that a diamond ring was an essential part of becoming engaged and married. The fact that there was essentially a monopoly on the diamond industry also meant that they could drive the prices up far beyond the gemstone’s actual value. This monopoly eventually broke in 2005 to 2006, which has gradually started to change the diamond market.
At the same time demand for diamonds has increased in China with the growing middle and upper class in their culture looking to embrace more and more western notions of wealth and status. All the while the United States has also seen a constant shift in the tastes of their customer’s when it comes to things like alternative colors. This means that the diamond market can be complicated by the chemical process and cost used to alter or produce the gemstone in different shades.
This means that the diamond market can be somewhat unpredictable and at times it can be rather complicated for an industry a newcomer to accurately understand. When it comes to diamonds as jewelry or for aesthetic reasons, people often refer to the Four-C’s of diamonds. This is the Cut, Color, Clarity, and Carat weight. These four characteristics are factored into a diamond purchased for aesthetic reasons When it comes to diamonds as a pure investment the four factors to consider are price transparency, quality assurance, transaction costs, and liquidity.
It is also worth bearing in mind that common diamonds tend to have a rather poor resale value. This is at an odd and somewhat ironic contrast considering the iconic gemstone has carried great historical value and has shown times of massive increase.
A diamond also loses its overall value when it is fractured or cut. The remaining pieces, when sold for the highest value possible, are still less in total than the original gemstone. Whereas with gold the value is based completely on weight, regardless of if it is a gold bar, strip, or coin.
The vast majority of diamonds that are acquired through jewelers will lose roughly half of their value upon purchase. This is largely due to the high retail mark-up which is added by stores to compensate for their own overhead costs like retail site rental, employee wages, securing inventor and other factors that go into maintaining a store.
Unfortunately, it also means that a diamond’s resale value is also very poor when you compare it to the sum spent on purchasing it. Yet, there some rare and iconic diamonds that can provide an investor with a great financial opportunity. However, it can be a staggering challenge to actually manage to acquire them.
What Are The Pros And Cons Of Investing In Gold?
Gold has a long and often storied history of being prized by cultures the world over. As soon as civilization rose, human beings started coveting gold as ornamentation, as well as a form of currency. Today gold is even used in a wide range of small, solid state electronic devices.
For many investors, gold is the premier precious metals and it has been that has been used many times as an effective safe haven asset for people who need to preserve their wealth during uncertain economic times. While it does have its own fluctuations and there have been times when politics has played a role in how its value is determined, gold has still managed to retain its value throughout human history.
However, there are some investors who dispute gold’s reliability as an investment. Indeed, some even see it as a poor investment vehicle. This counterpoint is based on the fact that it is an asset which doesn’t produce any actual earnings.
When it comes to owning physical gold, there are also additional costs related to properly ensuring it, safely transporting it through a reliable chain of custody, and also paying to have it securely stored either in your home or in an approved depository.
Just like diamonds and precious gemstone, gold is also very common in jewelry. When used as an aesthetic, there is the same high retail markup, which reduces its overall resale value.
There tend to be more ways to invest in gold. This comes in the forms of Gold ETFs, owning shares of a gold mining company, paper gold, and gold IRAs to name a few. Numismatic gold coins are also increasingly popular. Yet just like owning physical gold bullion or gold bars, there are concerns associated with its transportation, insurance, and security. There are also some counterfeit numismatic gold coins floating around, which means you will need to incur additional costs to have its purity and authenticity confirmed.
At first glance gold appears to be the safer avenue for investing compared to diamonds. Even, despite some of its more recent market fluctuations. When it comes to weighing your options between diamonds or gold, the inherent uncertainty of the diamond market feels a little more threatening. It could potentially to go either way due to the fact that the value of diamonds is more closely affected by fashions and cultural trends. Whereas gold has the historical backing that says even if it takes a short-term dip, it will inevitably stand the test of time.