Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Now is the Time to Buy the "New Gold"

Commodities / Gold and Silver 2013 Jun 25, 2013 - 06:07 PM GMT

By: Money_Morning

Commodities

Peter Krauth writes: On May 15, Christie's auction house sold a huge diamond to the Harry Winston firm for $27 million, setting a new record price for a colorless diamond in the process.

And while diamonds have been a girl's best friend long before Marilyn Monroe crooned those words, it's always been tough for investors to get into the game. Diamonds are considered one of those esoteric fields; an area of investing too small, complex, and exclusive to bother with for most.


Let's face it, up to now, there's much more subjectivity in rating diamonds than gold. And that makes it more challenging for investors if they want to hold the physical asset.

But it's worth the effort: Historically, diamonds have proven themselves to be very price stable - with a growth kicker. What's more, technology is making standardization of gemstones easier, making valuations more transparent.

That means diamonds are becoming an increasingly popular store of value.

According to the Financial Times, between 1999 and 2011, three-carat diamonds have risen in value by 145% while five-carat diamonds have risen 171%, as measured by the Rapaport Diamond Trade Index. The thinking is the relative price stability of diamonds is due to the fact that there's little speculative capital in this sector, estimated by some at no more than 1% of the market.

Rising Demand

Like other commodity markets these days, diamond prices are most influenced by global economic growth. Larger developing nations, especially the BRICs (Brazil, Russia, India and China) are growing their middle-class populations.

According to Kris Schellhas of the Investment Diamond Exchange in Los Angeles, China has seen diamond demand compound 32% annually since 2005. What's more, Chinese and Indian buyers often view diamonds not only as jewelry, but also as a store of wealth.

In China, diamonds are the fastest growing discretionary purchase.

Matt Manson, President and CEO of Stornoway Diamond Corp. (TSX:SWY), a developing junior diamond miner, also sees diamonds increasingly being thought of as an investable asset. According to Manson, "The target in the future is to have 15-20% of world diamond demand be people purchasing diamonds for just this purpose, for physical diamonds as an investment vehicle."

2 Factors That Change Diamond Investing

Beautiful as they may be, getting to the point where diamonds are a more common physical investment has proved difficult.

By comparison, gold and silver are much more straightforward. One ounce of 0.9999 physical fine gold has a worldwide market price, so anyone can easily determine its value at any point in time.

Not so with diamonds. The biggest challenge is determining value, because each diamond is unique.

But thanks to some significant developments in the diamond market, that's been changing.

The first obstacle was achieving a free market in the diamond trade.

For the longest time, even this basic goal was impossible thanks to the "De Beers Factor". You see, De Beers effectively ran a monopoly of the diamond market for a century.

But De Beers went private in 2001, and by 2004 its diamond stockpile had become depleted. That opened the door to a free market for diamonds, one where price discovery was made possible by allowing the forces of supply and demand to work unencumbered.

The second requirement has to do with how investment-grade diamonds are classified.
According to Schellhas, the U.S. government patented a process last year which now allows for classifying to be done in a repeatable way that is reliable, predictable, and consistent.

This achievement has paved the way for making physical diamond investing a realistic objective.

Thanks to this new classification system, GemShares has registered with the SEC to eventually roll out a new ETF, this one backed by physical diamonds, planned for some time in 2014.

Details on exactly how this ETF will be structured still need to be refined. But yes, the goal is for shares to be redeemable in a basket of investment-grade diamonds.

Three 24K Buys

Other than buying physical diamonds, diamond investments remain a little more indirect, for now.

And diamond-related equities are your simplest option.

This first company is the most direct and compelling play in the nascent sector.

Dominion Diamond Corp. (NYSE:DDC) was established in 1980 and is formerly known as Harry Winston Diamond Corp. This $1.2 billion market cap company mines and markets rough diamonds, and is the 4th largest diamond producer and the largest publicly listed diamond miner.

DDC owns a controlling interest in the Ekati Diamond Mine and 40% of the Diavik Diamond Mine, both located in Northern Canada. DDC has transformed itself by selling off the Harry Winston brand and retail operations to Swatch and most of its debt, and bought the Ekati mine from BHP Billition. Dominion Diamond's current P/E is a mouthwatering 2.4, it has lots of cash, and trades about 10% below book value.

The following pair are less direct plays, which offer benefits in diversification as the sector grows more investor-friendly.

Blue Nile Inc. (Nasdaq:NILE) is the world's largest online diamond retailer. The company was established in 1999, and also sells engagement products, as well as other fine jewelry made of gold, silver, platinum, palladium, and tungsten, plus pearls and precious gemstones.

NILE operates on thin profit margins (2.2%) in order to move its volume. The stock is rather expensive, trading at a rich P/E of 51.3, but earns a respectable return on equity of 33%. It has a market cap of $430 million, with low debt at only $670,000. This is one to watch, especially if the price comes back a bit.

Tiffany & Co. (NYSE:TIF) is a leading worldwide jewelry and luxury goods retailer. Founded in 1837, TIF now sells diamond rings and jewelry of all kinds, as well as timepieces, sterling silver goods, china, crystal, fragrances, and leather goods and accessories.

The company sells its merchandise through its retail stores, Internet sales, BtoB, and wholesale distribution. Though not cheap, its P/E is a more reasonable 22, with a current dividend yield of 1.8%, and profit margins at 10%. TIF is less of a pure play on diamonds, but certainly positioned to benefit as demand continues to grow globally.

Source :http://moneymorning.com/2013/06/25/now-is-the-time-to-buy-the-new-gold/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules