Precious stones can add sparkle to your portfolio
With a limited global supply, diamonds and precious stones are increasing in value as they prove to be a popular store of wealth in turbulent times.
"Iraq invaded Kuwait shortly after I had valued a large collection in the country in 1990,” says Jonty Condrup, an experienced Broker and Gemmologist. “The only thing the gentleman concerned could do was pack his car, including his jewellery, and head for the border with Saudi Arabia where he was safe. Meanwhile, Kuwaiti currency, the dinar, was frozen and couldn’t be sold.”
In times of uncertainty, the allure of tangible and portable assets only grows stronger. Today, many high-net-worth individuals and families are looking towards alternative investments to protect and grow their wealth as economic pessimism, high inflation and stock market volatility hit daily news headlines.
Precious stones have always been a popular choice. As well as being desirable luxury items, they can – if carefully selected – hold their value over time, removed from the fluctuations of more traditional investment markets. After a decade of slow growth, there has been a considerable increase in the price of diamonds and other precious stones, such as emeralds, sapphires and rubies over the last 12 months or so.
Jody Wainwright, Director of family-run jewellers Boodles, explains that the market is subject to what he describes as “the purest form of supply and demand.” Because diamond production is so limited – and in some cases, such as highly prized pink diamonds, has practically ceased – prices are largely driven by demand. “And the demand is currently there,” he confirms. “I believe that the market is now roughly where it should be, and don’t envisage a significant correction anytime soon.”
Although price increases may be levelling off somewhat, there are still some bargains to be had for careful buyers who are wise enough to seek expert advice, says Jonty, Jewellery Consultant to Corfield Morris and owner of Mayfair Diamonds. “Often, these might come from people who need a quick sale because they have cashflow problems or have jewellery from a previous marriage that they just want to dispose of.”
Tangible, portable assets
One of the main reasons for diamonds and other precious stones maintaining their popularity for centuries is that they are a physical means of holding wealth. This aspect can have particular appeal to certain investors in uncertain times when headlines are dominated by war, climate change and economic gloom.
“Tangible, portable assets offer security that digits on a screen do not,” says Jonty. “And precious stones are still being used today as a way of transferring wealth quickly and easily.” Jonty has come across similar scenarios to his experience in Kuwait recently, as people are fleeing Ukraine and using their jewellery to quickly raise money, as these were assets they could quickly take out of the country.
Which precious stones to invest in
"I sold a deep pink diamond eight years ago for about $2.5 million, and it would now be worth at least 50% more."
Deciding which precious stones to put your money into can be a difficult and complex process, with a bewildering array of choices available. When it comes to diamonds, the key criteria for valuing them are the “four Cs”: colour, cut, clarity and carat (or weight). With regard to the first of these, both Jonty and Jody suggest opting for coloured diamonds, if at all possible, as they are more likely to hold their value due to their rarity. “They have performed the best of any diamonds, no question, and the outlook for them has gone from strength to strength,” says Jonty, who advises that buyers should particularly look out for blues and pinks.
“I sold a deep pink diamond eight years ago for about $2.5 million, and it would now be worth at least 50% more,” he says. “I would also set great store on quality of cut,” he adds. “There are different grades, from excellent, to very good, to good. ‘Good’ tends not to be all that brilliant, so I would always go for excellent or very good. Having said that, some clients tend to get a bit too obsessed with excellent as being the only cut to go for.”
With regard to other precious stones – or coloured stones, as they are termed in the industry – Jonty names rubies, sapphires and emeralds as the best options for holding their long-term value. For all of these, provenance is one of the most important factors to look out for. “The only rubies I would recommend for investment are Burmese,” he says. “The best location for sapphires is Kashmir. And nothing beats Colombian emeralds.”
The importance of certification
Both Jonty and Jody stress the necessity of certification in all cases – including diamonds. This will not only prove the stone’s quality, but it can shed light on its provenance.
“I attribute great importance to buying untreated natural stones with certificates,” says Jonty. “In the case of diamonds, that would be from one laboratory only, which is the Gemmological Institute of America (GIA). The certificates from there are still as good now as they always have been. As regards coloured stones, I would recommend only two labs, both of which are in Switzerland – Gübelin and SSEF – or the GIA again.”
Jody also emphasises the need to have a record of a (non-diamond) gemstone’s country and/or region of origin that is as accurate as possible, which is not always easy with rubies, sapphires and emeralds. So, he advises, it’s important to find a reputable broker or retailer who will have a good picture of a stone’s history – whether it’s second-hand or new – and will be able to give an expert view on how ethical its sourcing might be (see box below).
Ensuring your stones are ethically sourced
For all precious jewellery purchases, one of the prime considerations should be ethical sourcing. “We see this as very important, and the industry has tidied itself up enormously over the past five to seven years,” says Jody.
With diamonds, one of the first essentials is certification demonstrating that it has been procured in accordance with the Kimberley Process, which was established by the UN in 2003 to prevent “conflict” diamonds (that is, stones used to fund wars and rebellions) from entering the market. “These days, it should be taken as read that everyone is compliant with the process, as the sanctions are very severe – instant jail for anyone who breaks them,” says Jonty.
When it comes to other precious stones, such as rubies, emeralds and sapphires, there is no equivalent of the Kimberley Process, but buying from a reputable seller who is certified by the Responsible Jewellery Council (RJC) can go a long way to ensuring ethical provenance, says Jody. ”As well as, of course, the certificate stating the country of origin and date of certification,” he adds. The RJC has a strict set of standards, that covers the entire jewellery supply chain, and ensures that all gemstones are produced and sold in an ethical, responsible and sustainable way.
Investment or decoration?
Selecting precious stones for purchase is further complicated, of course, by the fact that they can be looked at and enjoyed as part of the owner’s everyday life. Should they be considered as mere investments, or also as decorative luxury items? “The beauty of diamonds and coloured stones is that you can actually wear the investment,” says Jonty. “It’s a bit dull when these stones are just kept in a safe deposit in Geneva or Zurich, although some people will actually do that.”
When it comes to precious stones as objects of desire, Jody advises that, although good documentation is vital: “Look for a stone where there’s a bit of character – it’s got to ‘talk’ to you. I always look at a diamond first and the certificate second.” He adds: “I operate on the basis that no one needs jewellery. When it comes to expensive purchases such as cars, houses, and holidays, it’s always at the bottom of the pecking order. But what drives demand is people wanting the best in life – this is perhaps where fine jewellery comes in. Do you want to enjoy life and put your money into something different, such as diamonds? “If they’re something lovely that you can enjoy, then there’s an innate and residual value and history shows they’re a good investment over time. I think, at the moment, that plays into the spirit of our times.”
“Precious stones are increasingly considered ‘passion assets’, and a number of our clients are considering using them as alternative stores of wealth,” says David Beck, a Director in our Family Office Services team. “Thanks to a heightened focus on regulation, sustainability and ethical considerations, it is becoming far easier to buy with a clear conscience. “If you are looking to buy precious stones, we can use our network to introduce you to industry experts to help you make informed decisions,” he adds.
This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.
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