Diamonds can be an investor’s best friend (but handle with care)

Diamonds have enjoyed a boom in sales during lockdown with some wealthy investors seeking to lift their spirits with a sparkling new precious stone.

Recently, a multi-coloured ‘Tutti Frutti’ diamond bracelet made by Cartier in 1930 sold for £1.1million at an online Sotheby’s auction. It comfortably beat the £650,000 estimate despite the New York auction only being open to internet bidders.

Yet although diamonds can represent a good investment, they are not for the faint-hearted. You are delving into an unregulated market and although they may look alluring, the value of one-carat polished diamonds fell by more than 5 per cent last year due to a glut in the precious stone market.

A challenge when buying diamonds is that no two are exactly the same. Unless you are an expert, you will probably lose money buying through a jeweller.

To buy a diamond as an investment you are best advised to use a qualified diamond trader. The London Diamond Bourse in Hatton Garden, Central London, offers a vetting service to verify the quality of its trading members.

Unfortunately, it is closed during the Covid-19 outbreak. But it’s worth waiting until it reopens as investing in diamonds is not a pursuit to be done in a rush and you should never purchase without first meeting a dealer and viewing with your own eyes the diamond you are interested in buying. Further details are available at website londondiamondbourse.com.

As a rule of thumb, you should not expect to put in less than £5,000 for even a modest investment.

A carat is a measurement of weight and is equivalent to 200 milligrams. A round one carat diamond might be just over six millimetres in diameter and you would pay anything between £2,000 and £15,000 for such as stone – depending on the cut quality, clarity, colour and shape.

The quality of the ‘cut’ is one of the most important aspects and requires the eyes of an expert studying the stone through an ‘eye loupe’ magnifying glass.

Any diamond should also come with a laboratory grading certificate – though be wary as they can be forged. You should get any certificate independently verified.

Inevitably, Revenue & Customs will also want its share. Diamonds bought in Britain are subject to 20 per cent VAT. Also, if you make a gain on the investment, there is a minimum 20 per cent capital gains tax to be paid above the £12,300 annual exemption level.

Being able to wear diamonds as jewellery – as well as buy as an investment – means, of course, you or your partner can enjoy the physical appeal of this splendid gem.

While investment returns from diamonds have not been sparkling in recent years, the most sought- after designer jewellery pieces have risen in value by 80 per cent over the past decade, according to scrutineer Art Market Research.

As the recent jewellery auction by Sotheby’s shows, there is a strong market in designer pieces made by well-respected makers. As well as Cartier, other names to look out for include Chanel, Van Cleef & Arpels, Belperron, Boucheron, Bulgari, Chaumet, Lalique and Tiffany.

Often, there is a hidden signature on the underside of a piece that only an expert can recognise to show the maker and confirm its authenticity. Auction houses such as Sotheby’s might take a hefty premium on purchases – adding as much as 25 per cent to the hammer price – but you are also guaranteed authenticity. Any problems later on and you are assured a refund.

Catharine Becket is a jewellery specialist at Sotheby’s. She says: ‘Diamond sales results have been promising in recent weeks, with 92 per cent of pieces being sold, and of these, 62 per cent exceeded estimates. Almost a third of sales were to new collectors.’

She adds: ‘We all want something to look forward to – and bring joy when things return to a new normal. Clients sequestering at home are wearing big diamonds as it brings them pleasure in these relatively dreary times.’

Jewellery investors also need to factor in security costs. Anything valued at more than £2,000 should be listed on home insurance.

Exposure to diamonds via an investment fund is limited. One option is JPM Natural Resources fund, which has 22 per cent of its portfolio in companies involved in the mining of diamonds and precious metals such as gold.

Justin Modray, of financial adviser Candid Financial Advice, says: ‘This fund offers good general exposure to precious metals which is probably no more than most people would want.’

Another way to get stock market exposure to diamonds is buying shares in the world’s biggest miners of precious metal – such as Anglo American, listed on the London Stock Exchange.

Modray says: ‘Buying shares in individual diamond mining companies carries investment risk.

‘One of the biggest diamond mining companies is De Beers. It digs up a quarter of diamonds globally and is owned by Anglo American ,which has mining interests in many other minerals.’

Last year, De Beers’ revenue fell by 24 per cent to $4.6billion (£3.7billion) as prices for raw uncut diamonds fell by as much as a fifth.

This is partly because diamonds produced in laboratories are pouring onto the market. Synthetic diamonds can replace natural ones in industrial applications such as machine tools.