The dark side of diamonds: easy to buy, hard to sell
The diamond
market is experiencing volatility as buyers rush to resell, putting pressure on some diamond businesses. Experts say diamonds are luxury assets with low liquidity, different from savings channels like
gold.
The diamond market is undergoing a period of strong volatility as many diamond businesses close or suspend operations. A surge in diamond resales is believed to be putting pressure on cash flows of some diamond retailers. This development is thought to be linked to rumors circulating on social media about diamond shops selling stones not of the stated quality.
Market confidence remains affected as Thanh Hoa province police crack down on a cross-border diamond smuggling ring with estimated revenue of around VND 280 billion.
According to experts, while diamonds have high value and are categorized as luxury goods, they have long not been viewed by investors as a store of value or a safe haven like gold. Diamonds have low liquidity, so buyers almost always have to accept losses when selling.
Purchase prices are often substantially lower than the initial selling price. Diamond owners face difficulties when transferring ownership, especially during market volatility or when businesses shut down.
Investing in diamonds: a luxury asset but low liquidity. Photo: BCA
Why easy to buy, hard to sell?
Mr. Tran Trong Duc, CEO of Virtus Prosperity - an investment and financial advisory company, notes that the difference 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, low liquidity, and heavily influenced by marketing and the risks associated with technological development. This explains why gold is often preferred to diamonds as an investment asset.
Mr. Duc highlights several core factors that prevent diamonds from becoming a store of value or investment like gold. First is uniformity and substitutability, the foundation of a asset that can trade on a large scale. Gold is a standardized commodity; one kilogram of 999.9 fine gold has the same value everywhere, enabling easy trading on international exchanges and through ETFs.
Each diamond is a distinct asset with varying 4Cs (carat, color, clarity, and cut), creating millions of price points. This difference makes diamonds non-standardizable for trading like gold and difficult to form financial products such as futures contracts or physical-diamond ETFs.
Historically, gold has served as money, a means of payment, a measure of value, and a store of value. Diamonds have never served as money, are not used to price goods, and their ability to store value faces many challenges, especially as synthetic diamonds develop.
Central banks worldwide hold gold, but currently no central bank holds diamonds as official reserves. In addition, gold trades with transparency globally and operates continuously with narrow bid-ask spreads.
The diamond market is fragmented, prices depend on the quality of each stone, brand, and certification, while the resale market remains limited, making valuation and liquidity challenging.
Rapid development of synthetic diamonds, with quality approaching natural diamonds but at significantly lower prices, also pressures the price floor of commercial diamonds.
In the personal-asset category, Mr. Duc says diamonds still have value in certain specialized roles. They are luxury consumer goods with emotional value and lifestyle expression, similar to artworks, high-end watches, or designer handbags.
For families with significant wealth, diamonds can also function as a portable store of value, easy to store and pass down to future generations. However, this is not a speculative asset or accumulation with the expectation of profit from resale.
According to Mr. Duc, investors should be cautious about diamond investment pitches in today’s market where information remains opaque.
Duy Anh
