Interest in diamond investing is on the rise, but many investors still have questions about the best way to get involved. After all, choosing a diamond company to invest in can be difficult, as can figuring out if a physical stone is a good investment.
InvestDiamond.com, which was launched last year by gold and silver trading platform LinGOLD.com, believes that it has the solution to those — and other — problems. The company describes itself as “the only online platform that allows members to trade in diamond fractions rather than entire stones,” and is aimed at making diamond trading easy and affordable.
To find out more about what InvestDiamond.com offers, Diamond Investing News (DIN) spoke with Linnea Bruce, project manager at the company. In the interview below, she explains how the website works and who it is aimed at. In closing, she gives her outlook on where diamond prices are headed in the short and long term.
DIN: Starting off with an easy question, what is InvestDiamond.com and what inspired LinGOLD.com to create it?
LB: The concept behind InvestDiamond.com is that there are batches of diamonds that have specific characteristics, and members become co-owners of these batches — they can buy fractions as small as 0.001 carats, which means investing can start at US$15. The idea is to bring diamond investment to everyone.
LinGOLD.com is a gold and silver trading platform, and they were looking for a way to further diversify with tangible assets. They researched, doing market studies and looking at the Bain reports, and diamonds seemed like the next logical step for a new project.
DIN: Can you tell me more about the fraction trading system that InvestDiamond.com uses? It sounds pretty unusual.
LB: It is. As mentioned, members can buy fractions as small as 0.001 carats; on the website there’s a trading panel, so they can decide how many millicarats they want to buy and also put in their price. The price that’s there by default is a price quotation from the website, and it’s calculated via a mix of supply and demand on the website, and also with respect to the Rapaport price.
The Rapaport price that we use is for a 1-carat diamond, E color, VVS1. If we see that the price on the website is starting to become a speculative bubble, or is getting too far away from the Rapaport price, then we inject diamonds into the system at a reasonable price to bring the price quotation down to near the Rapaport price.
Members can also sell their fractions using the same trading panel — they put in the number they want to sell, or they can put in their own price. If they are above the quotation price, that’s fine, it just means they may need to wait a little while to find someone to buy at that price.
DIN: Normally diamonds are valued subjectively (ie. there’s no simple cost-per-ounce valuation system), which can make some people hesitant to invest. Does using batches address that concern?
LB: Yes. We decided to have batches of several different types of quality — we’ve chosen to have investment-grade diamonds, but not all stones of 1 carat, D color, internally flawless, which are really rare and could create a speculative bubble effect. That allows us to show what an average InvestDiamond.com carat would look like and come up with an average price.
DIN: And reselling diamonds is fairly easy? I know that can also be a big concern for people interested in investing in diamonds.
LB: It’s definitely easy to resell because the diamonds are stored in Switzerland in a free port zone. That means members don’t have to pay the value-added tax (VAT). As a result, it’s easier to resell and make a profit on reselling.
And, as there are many other members buying at the same time, members always have a buyer ready as they’re selling.
DIN: Okay, so the diamonds held by your clients are actually physical products. Where do you source those diamonds from? And what kind of diamonds are they?
LB: We have a supplier located in Antwerp. They actually cut the rough diamonds, and all the diamonds they receive come from countries that respect the Kimberley Process — they’re not conflict diamonds.
Those diamonds are between 0.5 and 2 carats, and they’re between internally flawless and VVS2. They’re between D, E and F and they’re all colorless.
DIN: Would a client be able to take possession of their diamonds if they wanted, or does that not work with the fraction system?
LB: They can’t take a diamond out of its batch, but if they’ve invested in the site, what they can do is sell those fractions and then buy a diamond from our supplier.
However, if they do that, then they have to pay the VAT tax and it’s less of an investment. In France, at least, it’s 20 percent, and getting that back would be pretty difficult.
DIN: Do people often choose to buy in that way?
LB: No, not really. We get requests sometimes, but people who do that are generally doing it for jewelry purposes, more for pleasure than for investment.
DIN: Who is InvestDiamond.com aimed at? Can someone who’s new to the diamond space get involved, or is it for more experienced investors?
LB: It’s actually for both. Since the trading panel for buying and selling is pretty simple, you don’t have to be an experienced trader to understand how it works. We also have a 40-page guide with lots of information to educate people, and the FAQs on our help page explain a lot about diamonds — where they come from, what criteria there are, things like that.
At the same time, we of course welcome people who are experts in diamonds. Right now we’re developing an expert mode so clients can place different kinds of orders — they’ll be able to pass more complicated orders and decide what the expiration date is, or what prices they want to buy between.
DIN: Have you seen a lot of investor interest thus far?
LB: We launched in France in November, and since then we’ve had somewhere around 750 members. Our English site just went up a couple of weeks ago, so I don’t have stats on that one. But yes, we’ve had a good deal of interest.
DIN: Finally, what’s your 2014 price outlook for diamonds?
LB: Our outlook for 2014 is that diamond prices will be relatively stable. Looking farther than a year, we think diamond prices will increase because they’re becoming more rare — even though there are new mines opening, there haven’t been many discoveries of new deposits. Also, demand is increasing, especially in China and India.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.