Diamonds may be forever, as the tag line goes, but iron ore is where the real money is at. This is just one of the findings that Nick Colas, chief market strategist at the ConvergEx Group, has unearthed as he delves into the demise - or deflation - of commodities.
As he explains in the attached video, a flawless, colorless, one carat diamond in 1960 cost about $2,700. Today it's worth roughly $27,000, roughly 900% higher. This is outstanding, except when compared to the 1,275% gain put up by iron ore during the same time.
"We think of (diamonds) as very special products. No two are the same," he says. "But they peaked in 2012 just like the entire rest of the commodity cycle."
If you are considering an investment in "shiny bits of carbon" as Colas refers to them, there are a few other financial things to keep in mind, aside from matters of the heart.
First of all, is the cycle. "When you look at the fundamentals for diamonds, it is exactly the same as every other commodity," Colas states. "How is China doing? How is Japan doing? When is Europe going to bottom? When are the emerging markets going to pick up steam?"
Finally, he says diamond buyers face the problem of huge industry mark-ups which put most purchases instantly underwater. But again, if you're serious about diamonds as an asset class or commodity play his advice is clear.
"If people are thinking about investments, the only thing they should think about are one carat and above, truly flawless diamonds," he says, citing their rarity as the key to their future valuation.
"It's the truly rare diamond that gets that kind of appreciation, everything else is more of a basic product."
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