Gold vs Diamonds – Should You Invest in the Rock or the Metal?
- Share.Market
- 4 min read
- 21 May 2024
As you might have heard “Diamonds are a Girl’s best friend”, but is it a best friend for investors? Diamond, cherished for its beauty, is the closest confidant of ladies, symbolising elegance and prestige. Meanwhile, gold stands as the investor’s steadfast friend, providing stability and liquidity in times of uncertainty. But why the divide?
Stay along as we explore and understand why gold shines brighter for investors while diamonds remain less enticing.
Gold: A Diverse Investment
Gold’s liquidity and stability make it a cornerstone of diversified portfolios. Gold has its own intrinsic value due to its rarity and industrial use. Its limited supply ensures its purchasing power holds over time, making it a reliable hedge during economic distress often treated as a currency. Moreover, gold exhibits a negative correlation with other asset classes like bonds and stocks, providing a safe haven during market turmoil.
Diamond: Rarity and Stability
Diamonds, especially investment-grade ones, boast exceptional value but with price fluctuations can be illiquid. With global production limited and demand on the rise, diamonds present a compelling case for capital preservation. Their stable price range, typically between 5%-7%, offers investors a sense of security amidst market fluctuations. Diamond prices are primarily dependent on 4C’s: Carat weight, Cut quality, Clarity growth and Color grade.
Valuation for Gold and Diamond:
| Feature | Gold | Diamond |
| Valuation Basis | Weight (per troy ounce) | Combination of 4C’s (Cut, Color, Clarity, Carat) |
| Current Price (as of April 15, 2024) | ~$1,900 USD | Varies greatly depending on 4C’s |
| Price Fluctuation | Relatively stable | Highly variable based on market demand and specific qualities |
| Factors Affecting Valuation | Purity (karat), market demand | Cut, Color, Clarity, Carat weight, Fluorescence |
Gold vs. Diamond Returns
Gold has experienced a 547% increase in price over the past 25 years, while diamonds have seen a 200% rise. Gold prices have exhibited significant volatility, ranging from 10-20% within a year, whereas diamond prices have remained stable, fluctuating between 5-7%. Over the last 50 years, gold has delivered an average annual return of 7-11%, while diamonds have yielded returns averaging 5-7% over the past 20 years.
Estimates suggest that gold prices may rise by 7% annually due to factors such as inflation, movements in the US dollar, and central bank policies. Similarly, diamonds are projected to experience price appreciation of 4-6% per year, driven by growth in emerging markets and supply constraints.
Gold Price Performance Over the Years
Prices of diamonds are not readily available because it is dependent on factors like 4C’s:
Current Diamond Price Chart – Updated April 2024
| Diamond Carat Weight | Price (Per Carat, Round Brilliant Cut) | Total Price |
| 0.50 carat | $990 – $5,000 | $495 – $2,500 |
| 1.00 carat | $2,000 – $14,000 | $2,000 – $14,000 |
| 1.50 carat | $3,300 – $24,000 | $4,400 – $30,000 |
| 2.00 carat | $4,200 – $29,000 | $8,400 – $58,000 |
| 3.00 carat | $7,200 – $51,000 | $21,600 – $153,000 |
| 4.00 carat | $8,400 – $71,500 | $33,600 – $286,000 |
| 5.00 carat | $9,600 – $67,500 | $48,000 – $337,500 |
Making the Investment Choice: Gold or Diamond?
Gold is best for investors seeking medium to long-term gains due to its volatility. The liquidity that gold provides is suitable for economic shifts. It has been the best inflation hedge over the 5–10-year horizon and negatively correlated to other asset classes. During market turmoil, flight to safety is gold as it has properties like malleable and ductile, which diamonds can’t.
Diamonds, on the flip side, are often perceived as status symbols and exquisite jewellery pieces meant for adorning oneself, rather than being viewed primarily as investment assets. Diamonds are considered ideal for long-term, multi-generational wealth storage, offering a timeless allure beyond their financial value.
Exploring Gold Investment Options
Investors have various ways to invest in gold. They can acquire it in physical form, purchase shares of gold mining companies to indirectly benefit by tracking their profit from gold deposits or opt for gold-backed mutual funds or ETFs tracking gold prices. Additionally, gold certificates or pooled investments enable ownership of gold stored in secure vaults by service providers. These diverse options cater to different investor preferences and risk profiles, offering opportunities to participate in the enduring allure of gold as an investment asset
Conclusion
Diamonds hold a certain attraction and are seen as a status by many, but their illiquidity and limited growth potential make them less appealing as an investment option. While diamonds offer fluctuating prices and moderate returns, gold presents higher volatility and the potential for stronger gains. Which gives this precious metal an upper hand against the rock (diamond).
Remember, the true “best friend” for your portfolio depends on your individual financial journey.
