How to invest in diamonds

While the FTSE 100 index of companies is up just 10 per cent from where it was a decade ago, over the same period the price of pink diamonds has skyrocketed by an incredible 388 per cent.

Last month, a new record was set when the Pink Star became the most expensive diamond ever sold – auctioned at Sotheby’s for an eye-watering $71 million (£55 million).

But diamonds are not just for millionaire investors. For those who are willing to do their research, investing in the precious stones can make savings sparkle – though investors need to tread carefully.

Tobias Kormind, founder of online diamond retailer 77 Diamonds, says: ‘Diamonds are the next area for alternative investments. People have done wine and art and they are looking for something else.

‘Unlike art and wine, diamonds are portable and using them does not reduce their value – they are meant to be worn.’

While many people might be familiar with traditional white diamonds, it is coloured diamonds that are now catching the eye of experts. Impurities in the rocks in some rare instances lead to a gleaming coloured stone being created. Their price is based on this rarity.

Around one carat of white diamond is produced for every ton of rock mined. With coloured diamonds the production rate is around 0.1 per cent of that.

Most rare are red diamonds – experts do not even know what causes this colour to occur in the stone. Next most valuable are blue diamonds, caused when there is boron in the rock. Pink results from distortions in the stone’s structure, yellow when there is nitrogen present and green when there is radiation.

The price of blue diamonds has climbed 228 per cent over the past decade and yellows by nearly 49 per cent. White diamond prices are up just 3.5 per cent over that period. But there are dangers for investors. Kormind says: ‘Diamonds are not only a store of value but they have outperformed any stock market in recent years.

‘But there are awful stories about people spending their life savings only to find out they bought worthless crystals, so investors must do their research and only deal with a reputable company.’

The ‘five Cs’ of diamonds are carat, cut, colour, clarity and certificate. This last point is crucial to any would-be investor. A certificate from an accredited, internationally-recognised body such as the Gemological Institute of America means a diamond has been independently assessed for authenticity and graded according to its quality.

Any diamond purchase should come with this certificate – not one which is written in-house by the jeweller or dealer.

Each stone should also have a laser inscription corresponding to its certificate – which should be checked by an independent third party.

The other ‘four Cs’ differ in their importance depending on whether they are referring to coloured or white stones.

Clarity refers to how pure the stone is, but this is less important in coloured stones – although you do not want a stone which has obvious marks or inclusions in it.

Carat is the size of the diamond, which can have an even bigger effect on the price when it comes to coloured stones.

While a one-carat white diamond is around four times as expensive as a half-carat white diamond, a one-carat blue stone could be 50 times pricier than one half its size.

But most important is the intensity of colour – a small red stone is more valuable than a large pink one.

The colour of a white diamond is graded D to G, while coloured stones are deemed at best ‘vivid’ and at worst ‘light fancy’.

Kormind says: ‘Without hesitation, this is an example of where size does not matter. The most important thing is the quality of the colour.

‘This can be subjective, but really you want the most vivid colour. With pinks, for example, what you really want is a bubblegum pink.’

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