Diamonds Vs Gold - The Best Investment Option

Since time immemorial, gold or gold jewellery has had an inseparable bond with women and Indian households. Almost every Indian household has gold either as a piece of jewellery, as bullion (though rare) or both. Considered a symbol of wealth and prestige, gold is also revered for its investment value in India. In other countries of the world, gold is often considered as synonymous with expression of love. The second identity that gold has in the western world is as investment in Gold ETFs, which is a relatively recent phenomenon.

However, in recent years, diamonds have risen in competition to gold on the luxurious consumption side. Though the two are often paired together to make attractive jewellery, as individual commodities or asset classes, both are viewed differently. Hence, this brings us to the pertinent debate of, Investing in Diamonds Vs Gold?

We look at some facts that will help us decide which of the two is a better investment class.

Liquidity:

One of the most important factors for consideration before investing in either gold/gold jewellery or diamonds, is its liquidity. Having an established global market with regular trading makes it easier to buy and sell gold. However, diamond/diamond jewellery is difficult to liquidate as it requires a buyer valuing specific characteristics of the diamond.

Storehouse of Value:

Another determinant that investors consider is the value of gold vs diamond. Generally, gold/gold jewellery is preferred because of its long history as a storehouse of value and wealth. Diamond/diamond jewellery on the other hand does not bring in a higher resale value as gold, owing to market demand and the presence of intermediaries in the diamond industry.

Stability Amid Market Volatility:

Gold prices are influenced by factors such as, demand-supply conditions, inflation and other economic conditions. Diamond prices fluctuate due to consumer demand, fashion trends and dynamics of the diamond industry. Nevertheless, gold prices are much more stable than the price of diamonds.

Safety Concerns:

Gold is a traditional haven for people who want to safeguard their money against major external circumstances. Diamonds are generally not considered a safety hedge against external conditions. Also, there is transparency when one buys gold, unlike diamonds which can also be synthetically produced.

Fungibility:

Gold is more fungible, meaning it can be exchanged for other assets of the same type unlike diamonds, which can be exchanged only when the other diamond is of same quality and meets the same specifics such as colour, cut, clarity and carat. This weakens its liquidity too.

Purity:

When it comes to gold karat vs diamond carat, there is no instance of gold being produced artificially so far. Diamonds, on the other hand, are made synthetically better than the naturally-sourced ones. Making diamonds artificially is also much cheaper than mining them traditionally. This means, pure gold is definitely rarer than diamonds.

Long-term Gains:

With respect to diamond vs gold price, gold is sure to become stronger over time, even with the intermittent fluctuations. Gold makes for a viable asset class that reduces risk even while creating wealth. Diamonds on the other hand, do not enjoy price appreciation and hence cannot give the long-term gains as much as gold.

Conclusion

While some challenges to investing in gold jewellery such as verifying the rarity of gold and storing gold coins and bullion do exist, diamond jewellery carries the risk of not adding enough appreciation value over time.

Even as the debate about gold and diamonds as an investment class continues, it is quite unlikely that an individual does not invest in gold/gold jewellery as their life’s first investment in jewellery. Overall, it then appears that Gold turns out to be a preferred investment class.

However, when considering an investment, it is always advisable to check with a financial advisor or an expert in precious metals and gemstones before putting your money in either asset class.

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FAQs

Q1. Is gold or diamond better for return value?

Ans. Gold usually tends to hold its value over time and hence offers a reliable hedge against inflation. On the other hand, diamonds might fetch a higher resale price. However in the case of diamonds, their value depends heavily on specific characteristics. So, a wise thing to do would be to choose gold for a secure investment, or if you are considering maximising your resale value, then a diamond would be a better option.

Q2. Will diamonds have resale value?

Ans. Gold can hold its initial price, but the same doesn't apply to diamonds. Because of retailer markups and fluctuations in the diamond market, you can expect to get significantly less when you sell your diamond jewellery. In fact, most pieces resell for between 25% and 50% of what you originally paid, depending upon jeweller to jeweller.

Q3. What is the return rate for diamonds?

Ans. While jewellers might offer 90% of the current market value if you sell your diamond jewellery outright, that number can be misleading. Experts say the true resale value is often closer to 90% because, unlike gold, diamonds can't be easily melted down and repurposed for new pieces. This means their value hinges on finding a buyer willing to pay for the specific stone you have. However, if you choose to exchange your diamond jewellery for something new within the store, some jewellers might offer a higher credit (between 90-100% of the current market price) to incentivise the exchange.

Q4. Can we exchange gold for diamond jewellery?

Ans. You can trade in old gold for any piece of diamond-studded jewellery crafted in 18kt gold. However, a standard deduction of 4% will be applied to the value of the old gold if you choose to exchange it for 22kt gold jewellery or a loose diamond. You will need to check with your jeweller for the same. Unfortunately, cash and gold coin exchanges are not available.