Gold vs. Diamonds

Avi Krawitz was spot on. The safe-haven mantle remains firmly in gold’s grasp. Really. Many thanks.

When it comes to gold, demand is influenced by consumption and investment. While the outlook on gold consumption for jewelry, in particular, and for industrial use, is largely a function of global economic activity, this factor is easily offset by its reputation as a risk-free store of wealth. With its historic roots of serving as a form of money, gold traditionally maintains its value as currencies depreciate.To a large extent, diamonds offer the same safety net. In fact, as Rapaport Group’s chief economist, Yariv Segev, explains, it can be argued that diamonds are even safer than gold, given their easily transportable nature. However, as Segev stresses, that’s where the similarities end. Price trends for diamonds have shown little resemblance to those exhibited for gold in the past few years. While diamonds followed financial markets in waiting for assurances of economic improvement, gold was far more bullish in its recovery from the downturn.While my father, who is by no means a financial advisor, naturally thinks about gold at the slightest sign of economic weakness, today there are few, if any, who view diamonds in the same way. On the contrary, the diamond industry is — or at least should be — cautiously contemplating the possible impact that Europe’s bailout might have on global consumer confidence.The main difference between diamonds and gold lies in the fact that investments in diamonds are not large enough to influence prices. The industry is almost exclusively dependent on consumer demand and therefore, on economic growth. This makes it highly susceptible to risk. We learned this when, as the recession set in and unemployment rose, consumers naturally shied away from diamonds. To subvert that risk, the industry would do well to encourage investments in diamonds. While a strong marketing focus along these lines would help, as has been suggested by many before, the most effective way to achieve this goal would be through the commoditization of diamonds. Granted, the complications of such a development are well recognized and constitute a debate for another forum. But the theory is that commoditization would make diamonds more accessible to the man on the street as they become easier to trade. For now, we recognize it as gold’s major advantage over diamonds in wooing investors.
- Avi Krawitz

Useful link:
www.diamonds.net