Jewelry as an Investment and Store of Value

The Wall Street Journal ran a good article on the strong interest in jewelry as an investment and store of value.   Jewels seem to be a good investment and safe way to increase portfolio diversity, and also an easy way to personally transfer wealth, especially in times of crisis.

The Wall Street Journal reports

Blue-chip paintings may be getting the most attention in this volatile art market, but jewels are quietly starting to shine. With gold prices down and currency values roiling, some investors and collectors are scouring for creative alternatives where they can store cash—and move it around quickly in a pinch. Why else would investors sock $1 billion in a decentralized, online-only currency like Bitcoin that didn't even exist six years ago? Alan Silbert, who last week launched a website accepting Bitcoins for its $2 million condominiums and $25,000 watches, said, "People are exploring ways to exercise more control over their money—they just want to diversify their assets."

For this reason, diamonds—arguably the hardest asset around—are no longer just a girl's best friend. Men are the ones primarily responsible for moving the $71 billion U.S. market for jewelry now, and not because they want to buy a few baubles for their wives on special occasions. Men, as well as some women, are increasingly shifting a portion of their assets into diamonds and colored gems as pure investments, attracted by jewelry's portability and global appeal, experts say. Christie's jewelry specialist Rahul Kadakia said several men have walked into his office lately, seeking advice on how to "invest $100 million in jewelry over the next five years—and they've done it."

Martin Rapaport, a former diamond cleaver who built the industry's biggest diamond-trading network RapNet, said a billionaire friend recently bought 100 single-carat diamonds and had them strung together in a Roaring Twenties-style strand. That way, if the man's fortunes shifted, he could step on an airplane with his nest egg, worth roughly $1.1 million, looped safely around his wife's neck. "If the world gets a computer virus and suddenly you need to move $10 million in 48 hours, gold will set off metal detectors and too much cash gets cumbersome," Mr. Rapaport said, "but you slip on a $5 million ring and a $5 million necklace and you've got no problems."

Judith Price, president of the National Jewelry Institute, said a "refugee mentality" has seeped into the entire jewelry field over the past decade, ratcheting values for everything from natural pearls to ornate brooches by Van Cleef & Arpels. "If there is a problem, people want to feel like they can escape," Ms. Price said. "You can't do that with a Rodin tucked under your arm, but think about how a tiny a jewel is—you can slip it in your pocket and walk away."

Diamond prices often climb when stocks are falling and vice versa. But the long view on diamond values is reassuring, jewel and art experts say: Last month, the average asking price for a one-carat diamond among gem dealers was roughly $10,500, up 31% from a one carat's going rate six years ago, according to the RapNet Diamond Index, which tracks diamond prices among 12,000 gem dealers around the world. During that same period, Standard & Poor's 500 index increased 14%.

Jewelry has long served as a pretty way to store and display wealth, from King Tutankhamen, who was entombed with his collection, to Henry VIII, who instructed his jewelers to embed his initials in just about every bauble he wore. Today a few royals are still considered heavyweight buyers of jewelry, specifically the sultan of Brunei and the emir of Qatar.

The difference is that investors dominate the jewelry market now, and their tastes and collecting habits are determining price levels for all sorts of gems. In China, industrial tycoons mainly covet D-flawless diamonds—defect-free gems. This preference for perfection revealed itself when Chinese investors even sidestepped larger but slightly clouded stones in favor of smaller, flawless varieties, said Sotheby's specialist Lisa Hubbard. Elsewhere in the world, though, bigger still appears to sell better: Last month, Sotheby's sold a 75-carat pear-shape white diamond for $14.2 million; the seller paid $4.3 million for it in 2001, earning a 230% return.

Collectors in China have also catapulted asking prices for colored diamonds—particularly in rare shades of pink and blue. Christie's says the last time its $39 million "Princie" pink diamond came up for auction in 1960, it sold for $1.3 million.

India and the Middle East, on the other hand, seem more smitten with natural pearls, a run-up that kicked off in 2007 when two strands of pearls that once belonged to the Maharajah of Baroda sold for $7.1 million, far above the $6 million estimate. Last May in Geneva, a man also paid Christie's $4.5 million for an emerald-encrusted turban ornament, called a sarpej, that was estimated to sell for $800,000.

Source: The Wall Street Journal