To answer the question, what’s a better investment gold or diamonds, we will have to start by looking at the two individually.
There are various reasons why investors buy gold. Some investors regard gold as a strategic asset that can be used as a means of portfolio diversification, others regard gold as an inflation hedge and a currency hedge such as hedging against the U.S. dollar.
One of the reasons why gold is considered a valuable investment option is due to its low or lack of correlation with mainstream financial assets. The lack of correlation between gold and other financial assets makes gold an attractive option especially during financial and economic downturns during which equities tend to be volatile and experience a significant loss of value.
Investors tend to move away from equities during a recession towards gold as gold is often perceived as a “safer” asset during a recession. the increase in gold prices during a recession can be attributed due to switching to the gold market as a result of a lack of trust in financial markets by investors.
INVESTING IN GOLD
Gold Coins - One of the simplest ways of investing in gold is by purchasing the gold bullion. Bullion bars are more suited to large buyers. Gold coins are the best way to buy precious metals for most investors as they are easy to trade and highly liquid.
A wide variety of merchants are available to investors. The merchant sells gold coins to the general public and can also buy them back from the public.
For example, a South African company INVESTGOLD, offers investors, private or institutional, the option to purchase gold bullion by buying a range of coins.
The price of the coins is linked directly to the price of the gold, the rand dollar exchange rate, (the official currency of South Africa) the time of the trade, and the number of coins traded. The most common coin is the Krugerrand, one of the most successful bullion coins with more than 61 million Krugerrands minted thus far. The coin contains 1 troy oz. fine gold
Gold Exchange Traded Funds (ETF) - You can invest in gold through an ETF. An exchange-traded fund is a type of security that has a collection of securities, such as stocks. In this case, a gold ETF is a commodity exchange-traded fund that has only gold as a principal asset.
A number of Gold ETFs have been developed in major world stock exchanges. Examples of gold ETFs include AGOL which is U.S based and listed on the New York stock exchange, GOLD which is traded at Australian stock exchange and Gold Bullion Securities (GBS) which listed on multiple securities such as London stock exchange and Frankfurt Stock Exchange.
Investing in gold through ETFs sounds tempting due to the convenience, you need to be aware of this method of investment.
If you use an ETF to invest in gold the problem is, you don’t actually own the gold. You cannot actually take delivery and hold it in your hands if you need it. If you redeem a gold ETF, an investor will receive the cash equivalent and not the gold.
The advantage of buying physical gold such coins like a Krugerrand or a gold bar, is you own the gold. It is an asset that you can store outside the financial system. If you rely on a financial institution holding your gold or interest in it like an ETF, you are exposed to “counterparty risk”. The risk they may default or fail to meet their obligations. This is why buying physical gold is more practical.
Diamonds are a good store of value and a desirable and investable asset class. Like gold, investing in diamonds can give protection against economic crises in the global capital markets. Diamonds can be used as a hedge against inflation and uncertainty in the global forex markets. A kind of insurance against difficult times.
Diamond prices aren’t dependent on variations in exchange rates or on external financial authorities. The prices are set by professionals and published weekly by Rapaport Diamond Prices. The Report provides an international benchmark used by diamond dealers to establish a stable price quotation in all the major markets.
Other benefits of diamonds include:
- Diamonds are a very concentrated form of storing wealth. Compare a single diamond to a large gold bar.
- Investors have 100% direct ownership of a portable and tangible asset with proven value
- Diamonds retain value and performing consistently even throughout economic downturns
- Many people see diamonds as having lasting value both monetarily and culturally
- Diamonds are not affected by daily oscillations of markets and not as likely to have drastic price changes.
- Diamonds are in demand internationally
INVESTING IN DIAMONDS
Where to buy loose diamonds?
Many people are afraid to buy diamonds online, but there are reputable vendors available. You just have to do your research and compare their offerings.
You can purchase loose diamonds from a jewelry store, but the chances are you will be paying more because of the markup they need to add. There are many diamond wholesalers where you can get diamonds closer to the Rapaport Diamond Prices report.
So, what is a better investment, gold or diamonds?
Because diamonds and gold both have value and stability, they can be considered complementary assets. There is no need to think which is better, it is just apples and oranges. No portfolio should just be one asset. You need to diversify and diamonds and gold are a good match.
However, if you were to choose between the two, gold would win. The diamond market is complicated if you have just started to invest in the diamonds, and gold is known to be a safe haven even in times of economic fall. Also, looking at the current financial crisis in the US, many experts are predicting that gold prices will skyrocket into the stratosphere.
Investing in anything carries risk. Just do your due diligence and make your choices. Try to find sources that are objective. Information from those who will benefit from your purchase will always encourage you to buy from them, even if it isn’t the wisest investment.