How to Invest in Diamonds

There are two primary methods for investing in diamonds. First, you can purchase physical stones for resale at a later date. This method offers the most stability, but it can limit profits. The second option is to trade in diamonds contracts, which is far riskier but presents opportunities for huge profits. As with all investing, choosing between security and potential profit is never a straightforward choice. Consider these factors to determine the methods that will work best for you.

Purchasing Stones

The first step to investing in diamonds by physical purchase is to learn where and how to purchase stones. For this, you need a reputable diamond dealer. Individuals in large cities with a vibrant jewelry trade will have a number of options. Those in more remote areas may need to find a dealer using the Internet. However, it is best to meet a dealer in person when possible. Invest only in stones that have been certified by the Gemological Institute of America (GIA); this is the only method to know the appraised value of the stone. When possible, go to the wholesale market for the best prices.

Storing Stones

Store your diamonds in a vault safe from all weather changes and secure enough to hold your valuable possessions. The GIA certificates for your stones should be registered with your insurance agency when you purchase insurance and with the bank or vault holding your diamonds. The certificates should be kept in a fireproof, waterproof location.

Resale of Stones

When it is time to sell your stones, you may find it challenging to gain access to the retail diamond market. The options are to resell the stone to a wholesaler, approach a jewelry manufacturer or approach another investor. When you are holding an asset like a diamond, small price fluctuations may occur. Over time, however, the price should continue to remain steady or improve.

Anticipating Prices

If you want to take the bolder route of trading paper contracts rather than investing in hard stones, you will need to learn a bit about the diamond market. You will be profiting not on the long-term price stability of the stone but on the short-term fluctuations in its price. Factors to consider include political climate; reports on new dig sites and production; and information from DeBeers, the world's largest diamond company. 

Trading Derivatives

You will need to be prepared to expose yourself to risks when purchasing futures or options contracts. The first step is to locate a trader you want to work with. Your trader, like your standard stock broker, should be able to provide you with insight and offers you would not otherwise be exposed to. Most commodities trading can occur online today, but it is best to look for a trader with a physical office who can respond personally when you need assistance.

Diversifying a Portfolio

If you do decide to trade diamonds contracts rather than hard stones, be sure to diversify your assets. If an unpredicted event occurs in the diamond market, you could be exposed to a large degree of risk if your assets are not well diversified.

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