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Newsletter 11/2014

Finance | Jewellery - investment or indulgence?

 

Dubai is increasingly a major centre for the diamond and gems trade as well as a jewellery hub for the region. Its annual flow of diamonds has grown tenfold in the past decade to $35 billion. And today the Dubai Multi Commodities Centre is hosting the inaugural Middle East Gems and Jewellery Forum.

This seemed the right moment to ask whether precious stones and jewellery can really be considered a serious investment class or just an expensive indulgence for the rich. The diamond trade in particular does itself no service by always rushing to promote the emotional appeal of its product, and coming over all hurt if the nasty word ‘discount’ is mentioned.

Love trade

You could almost imagine these tough dealers are just in it for the love of the product and not a profit. They are of course serious investors in precious stones and very well aware of their actual cost and value. They are also the people you might want to sell your purchase back to one day.

For something to be an investment then the qualities attributed to gems of ‘ beauty, rarity and durability’ are just about right. But there also needs to be a ready market. Can you sell? And can you get a market price?

That’s the great benefit of large liquid markets like big cap stocks or government bonds. You can sell in an instant for a market price. Try to sell gems and jewellery and it is not so simple. For really important pieces going to auction may be the best option. For most items it is a question of hawking it back to a member of the trade or finding another retail buyer.

Hard sell

Gems and jewellery usually will have a value. But maybe not nearly what you paid for it, even after several years because that jeweller who thinks we should all be in love with his product has taken a significant profit margin. They also go in and out of fashion.

The speech from the main sponsor of the new forum, Ian Harebottle CEO of Gemfields, boasted at how this company was successfully promoting emeralds and rubies and boosting their value. Stones of colour are the new big thing. Diamonds have apparently lost their lustre since De Beers stopped spending $400 million a year in advertising to promote them as a girl’s best friend.The trade is also losing its young buyers to iPhones, iPads and video games. Gemfields has gone as far as buying the iconic jewellery maker Faberge to get its stones rolling out of the door. Actually Mr. Harebottle’s presentation did seem to make a good investment case for coloured stones and his stock has been a top performer. Then again is the beginning or the end of a trend?

China crisis?

Other speakers noted that Chinese buyers comprise 70 per cent of the global luxury goods market and spend $100 billion outside China every year. The problem now is that its government is frowning on luxury and corruption and the economy is slowing down. So where are all the buyers going to come from? Russia?With the crisis in the Ukraine, economic sanctions and a crash in energy prices Russian buyers are another source of luxury buyers that’s drying up. Reduced demand and substantial supplies from major producers like Gemfields does not sound like a very solid proposition for rising prices at least in the near future.

Of course if you are rich enough to fall in love with a luxury product you will pay any price, but not if you are an investor.

by Peter Cooper

ArabianMoney - Editor & Publisher & member of the ABCD

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