Which is a Better Investment – Gold or Diamonds?

Beyond the glitter, gold and diamonds present two compelling options for investors seeking to diversify their portfolios. With their intrinsic value and price stability, they can provide excellent stores of value, especially amid economic uncertainty.

But is it gold or diamonds which would be best for your investment?

Well, both gold and diamonds have their own set of benefits and drawbacks. While gold is a more liquid investment and serves as a hedge against inflation, you might find diamonds more appealing for their ability to preserve value over the long term.

With trillions of dollars worth of gold and diamonds traded globally each year, gold and diamonds remain highly attractive markets.

Let’s explore the options and help you make the best call.

Gold has captivated humankind for millennia. Its luminous yellow shine and malleability lend themselves beautifully to jewellery and ornamentation. But beyond its aesthetic appeal, gold has also long served as a currency and stable repository of value. This is evidenced by its historical role as the basis for monetary systems like the gold standard.

In the modern economy, gold remains a popular investment asset due to some key attributes:

• It acts as a hedge against inflation and currency devaluation. With limited supply, gold tends to hold its purchasing power over long periods of time[link to our history of gold piece]. During bouts of high inflation, when fiat currencies decline sharply, gold prices often rise as investors flock to it as a safe haven.
• Gold has a negative correlation to stocks and bonds. So when paper assets decline, the gold price often rises as it attracts safe haven capital. This diversification benefit helps investors manage overall portfolio risk.
• Gold plays an integral role in the global financial system. Central banks and institutional investors hold it as a reserve asset on their balance sheets. This provides fundamental stability to gold demand, underpinning its market value.

There are several ways for individual investors to gain exposure to gold. The most direct is purchasing physical gold in the form of bullion bars and gold coins. Gold can also be bought through ETFs and mutual funds that track gold prices. Gold mining company stocks offer indirect exposure by tracking their profits from gold deposits. Finally, gold certificates and pooled accounts allow ownership of gold stored in vaults by providers. Each option differs in terms of investment amounts, security, storage and trading flexibility.

So, for investors seeking a stable asset to balance their portfolio, gold shines bright. Its long history as a store of value persists today amid global economic uncertainty. By understanding its investment merits and the options available, gold can play a valuable role in achieving one’s financial objectives.

Diamonds conjure images of glittering engagement rings and luxurious jewellery. But beyond adornment, diamonds have emerged as an alternative asset class for investors seeking diversification. The diamond investment market has grown steadily over the past decade, driven by rising demand and prices.

Let’s examine the key factors drawing investor interest:

• Diamonds are a scarce resource. The precious stones form naturally 100 miles underground over billions of years in very stable pockets called kimberlite pipes. Annually, global diamond production is around 130 million carats, with very few investment-grade diamonds recovered. This scarcity limits supply, causing prices to rise over time.
• Investment-quality diamonds are hand-selected based on the 4Cs – carat, clarity, colour and cut. Diamonds with excellent ratings across these dimensions have the highest value and price stability. They serve as long-term stores of value, just like property or fine art.
• Polished diamond prices have risen around 4% annually in the last 20 years. This steady appreciation results from growing demand outstripping limited supply. As emerging markets like China and India gain affluence, demand for diamond jewellery and investments increases.
• Diamonds are a great portfolio diversifier due to their low correlation to stocks, bonds and commodities. This contributes to stability during uncertain economic conditions.

There are several ways to invest in diamonds. The most direct is purchasing physical diamonds of investment quality having certificates from grading labs like GIA or EGL. Diamond investment funds offer a managed portfolio of stones. Companies like Diamond Foundry allow shared ownership of lab-grown diamonds. Overall, diamonds present a compelling option beyond conventional securities.

For investors, the enduring allure of diamonds now extends beyond jewellery to their investment potential. By understanding diamond quality, market dynamics and investment options, one can realise stable portfolio returns.

Now that we have covered the investment case for gold and diamonds independently let us do a head-to-head comparison across seven key parameters. This will help you to gain a rounded perspective on their relative merits as asset classes.

Liquidity refers to the ease and speed with which an asset can be bought or sold without impacting its price. Gold offers the highest liquidity among commodities, with highly active futures and bullion markets enabling easy entry and exit.

Diamonds are relatively illiquid – it can take months to find buyers for large individual stones or portfolios. The market is not as organised as gold, relying on dealers and auctions. However, fund investments provide exposure to diamond markets without direct liquidity concerns.

Overall, gold scores higher in terms of transactional liquidity owing to its organised market structure. Diamond values can be far more subjective than gold, leading to the possibility of being underpaid for a diamond or receiving very varied quotes.

The diamond market has had its fair share of negative publicity, owing to ethical issues of exploitation of poor labourers and employment of children in the industry.

The ‘blood diamonds‘ controversy is still around, and imports of diamonds to the UK and the European Union from South Africa and other diamond-producing countries are highly regulated. As an investor, you need to be abreast of these issues surrounding the trade. Gold, on the other hand, has a significantly lower social impact.

Whilst there are environmental concerns, these are on the delcline in recent years. It has been around for thousands of years, and currently, the gold market is extremely transparent and structured.

As a UK investor, you can reap good benefits by investing in gold. Gold bars and coins available in the UK are VAT-free, as they are manufactured using investment-grade gold.Coins that are legal tender in the country also offer the added advantage of the exemption from Capital Gains Tax. Investments in precious stones like diamonds do not carry such benefits.

Our automated portfolio builder will provide suggestions based on various investment objectives.

Which is better for investment – gold or diamonds?

Gold suits those with 5-10-year investment horizons targeting inflation-beating gains. Diamonds work better for multi-generational wealth preservation, needing stable value storage over decades. Blending both provides portfolio balance across timeframes.

Are diamonds more valuable than gold?

Not necessarily. Gold has industrial uses, conducts electricity, and has monetary attributes. Diamonds gain value from scarcity and consumer demand. In terms of investment utility, gold provides more liquidity and diversification. Diamonds offer long-term stability.

What is more valuable than gold?

Platinum and palladium are more rare than gold currently but have lower investment values per ounce due to lower demand. Silver offers a higher potential upside through volatility, albeit with higher risks. Rhodium and iridium are also precious metals priced higher than gold.

What is better than gold?

Equities in high-growth companies, prime real estate in top locations, artwork and collectables have historically delivered higher long-term returns than gold. But gold acts as portfolio insurance during economic crises when other assets decline. Cryptocurrencies offer massive upside potential but with higher risks.