The diamond market is volatile as consumers rush to resell, pressuring several businesses. Experts say diamonds are luxury assets with low liquidity, unlike savings channels such as gold.
The diamond market is undergoing a period of sharp volatility as many diamond businesses close or suspend operations. The wave of diamond resales is believed to be pressuring cash flows at some outlets. This development is thought to be linked to social media rumors questioning the quality of some diamond shops.
Market confidence remains affected as Thanh Hoa provincial police crack down on a cross-border diamond-smuggling ring with estimated revenue of about 280 billion dong.
The combination of high value and low liquidity, along with market volatility and news of business shutdowns, can pressure cash flows and complicate ownership transfers during downturns in the diamond market.
Mr. Tran Trong Duc, CEO of Virtus Prosperity, an investment and financial advisory firm, says the difference in status between gold and diamonds is not accidental. Gold is a financial asset with monetary function, standardized, globally liquid and recognized by governments.
Diamonds are a luxury commodity with emotional value, personalized, with low liquidity and subject to influence from marketing activity and risks from the development of technology. This explains why gold is often favored over diamonds in the role of an investment asset.
Mr. Duc points to several core factors that keep diamonds from becoming a store of value or investment like gold. First is homogeneity and substitutability, the foundation of a widely tradable asset. Gold is a standardized commodity; one kilogram of 99.99% gold has the same value everywhere, enabling easy trading on international exchanges and through ETFs.
Each diamond is a distinct asset with varying 4C criteria (carat, color, clarity, and cut), producing millions of price points. This variation makes diamonds nonstandardized for trading like gold and makes it difficult to form financial products such as futures contracts or physical-diamond ETFs.
Historically, gold has served as money, a means of payment, a unit of account, and a store of value. Diamonds have never fulfilled monetary function, are not used to price goods, and their ability to store value faces challenges, especially as synthetic diamonds develop.
Central banks around the world hold gold but none hold diamonds as official reserves. In addition, gold prices trade transparently on a global basis, with continuous trading and narrow bid-ask spreads.
Diamonds are a luxury commodity with emotional value and lifestyle signaling, analogous to artworks, luxury watches, or designer handbags.
For families with substantial wealth, diamonds can also act as a portable store of wealth, easy to store and convenient to pass on to future generations. However, they are not speculative assets nor investment vehicles designed to generate profits from resale.
Investors should exercise caution regarding diamond investment pitches in today’s market where information remains opaque.
