Offers from banks attract new operators, like Bolaffi
By Sandra Riccio
(La Stampa) - From the show-windows of the most prestigious jewelers people hurry to bank counters. Lately, diamonds, too, have become 'investments.' Those who feel uncertain are seduced with the lure of a safe haven. People are also attracted by their value-adding performance in a time when returns offered by more traditional instruments, such as treasury bonds or bullions, are below zero. Over the past five years, investment diamonds generated an average yield of 3.5% per annum, according to Intermarket Diamond Business (IDB), a leading player in the Italian market. Real estate and gold went into the red in the same span of time.
Banks along with other large financial institutions have long been equipped to provide this type of alternative investments and the market sees new operators coming. Bolaffi, the historic auction house of Turin, has just opened up an opportunity to invest in diamonds for those willing. "It is a request that we have recorded among our clients, including here the need for diversification,” says Philip Bolaffi of Bolaffi Spa. “Many were looking for this type of options, but they did not trust the non-transparent offers that were on the market."
BOOM IN DEMAND
"Only in the first four months of this year we have seen a sales jump of 50%," says Claudio Giacobazzi of IDB. And if some time ago precious stones were bought by big-league entrepreneurs or wealthy families, today they are purchased even by students and retirees. For those who do not want to keep their stones at home, there are ad hoc services such as safekeeping in special vaults (the cost is around 100 EUR per year). "There's a strong interest in this kind of service,” says Roberto Maldina, Personal Finances Manager at Intesa Sanpaolo. “We recommend investing in diamonds not more than 5% of your assets."
The doors to smaller portfolios are also open thanks to low entrance cost proposed. Currently, it is enough to have just 4,000 euros to invest in these stones (which are always ethically guaranteed, according to operators). But you have to move very cautiously and rely on real professionals. The pitfalls are many. The first thing to know is that the diamond market is non-liquid, which means that diamonds are not easy to resell. So, it may take a long time to divest, especially if there are high import duties levied on diamonds. "The work we are doing ahead of the sale also involves selecting stones, which have characteristics making their future sale potential high," says Philip Bolaffi, whose company offers investment discounts ranging from 4,000 to 20,000 euros.
It must be said that investment diamonds account for only a very small part, 2% of the investment "discounts." Precious stones mounted on jewelry are out of the question. In case of investment diamonds, it is necessary to have a guarantee that the stones you keep in your hands do not hide bad surprises. And it is up to you to choose an institution that offers certificates. However, do not trust just anyone. The most recognized name in the international market is the Gemological Institute of America (GIA).
OPAQUE PRICES
Unlike gold that is continuously quoted, diamonds have no fixing. Instead, diamond prices are published every three months in the financial newspapers and are updated only periodically (they are also may be found on the websites of major diamond players). The variables that determine diamond prices are many and even if stones have similar characteristics (shape, weight, color, clarity, cut, fluorescence and international certification), their sales prices are subject to significant changes. In practice, weight is the only characteristic which is measurable and objective. The rest is reviewed from time to time and if the original certificate has not been well prepared you can lose 70% of the amount paid. It will be enough if, say, clarity will turn out to be a couple of grades lower.
"Price is not the only thing you have to look at,” Claudio Giacobazzi says. “First of all, we should provide protection." Experts also recommend that you have a time horizon of at least seven years, that is long-term. Certainly, it is not the kind of investment, which you make in trading, when you buy and sell within a short period of time. In fact, when dealing with diamonds you have to take into account the VAT (22%) adding another 3% for intermediary commissions. Therefore, you may already face a 25% loss in your portfolio from the start. You will need some time to make up for it. It would be good if it takes just long enough and not perhaps "forever."
