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In recent years, the stock market has proved highly volatile, emphasizing the need for one to secure their financial stability through alternative means. Talking about alternatives, Gold and diamonds might be the most stable choices worth trying out.
They are relatively secure and tend to maintain their value even during economic downturns. But before you decide which of the two commodities is worth investing in, it is crucial that we point out some of their key features as investment tools, including advantages and disadvantages.
Let’s dig in.
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Factors to Consider When Investing in Diamonds and Gold
Even though there are different factors to think about when considering investing in gold and diamonds, your personal preferences and finances should always be your top priorities.
Remember, there’s nothing like a perfect investment, any of these two has its fair share of pros and cons. Generally, these are the factors you need to keep in mind when choosing either one of them.
When investing in gold, the following are the factors that you should keep at the back of your mind:
When purchasing gold, always go for certified retailers who can be trusted and operate within the confines of the law. Luckily, a simple Google search will give you a list of authorized retailers and their locations.
It may be easier to go for online marketplaces, but this can be risky if you don’t know where to look.
Only Buy Physical Gold
It would be wise to buy real and actual gold that you can hold with your hands and then store it yourself if you have the facilities. This way, you won't be affected by any shortages that may arise in the market for the commodity.
Further, when your gold is in your possession, you can account for every unit you own and know how much to expect when the selling time comes.
The rules are, however, slightly different for gold IRA rollovers. In that case, you are not allowed to hold the gold yourself but you can use one of the government-approved depositories for the same. Approved depositories provide you with insurance coverage for your precious metals as well as the ability to choose between segregated and unsegregated storage.
Lastly, always take your time to read the sale agreement to ensure that you will be the sole owner of your gold. Some companies are known to sneak in dubious terms that give them some rights over the commodity once you buy from them.
If unsure of the terms, you could consult a legal representative to point out everything for you.
Here are the factors you should consider if you are planning to invest in diamonds:
If you want your diamonds to give you huge profits when you sell them, you should ensure they are of the highest quality possible. Factors determining the quality include the carat, color, clarity, and cut (the 4Cs).
This is a crucial factor to consider as it is a sure way of ensuring that you get the commodity at fair value. So, always be keen on the certification for it to be genuine.
Before getting into the world of diamonds, continually educate yourself to be familiar with what you are getting into. For instance, you should learn the terminology used in the field, such as the 4Cs of diamonds, the different types of diamonds out there (colored and ordinary), factors affecting the value, and so on.
The type of diamond
Due to emerging trends, the market may require different varieties of diamonds, such as colored diamonds. So, to be on the safe side, always have a portfolio with a variety of commodities. This way, you will boost your chances of a good resale value.
Comparing The Two: Investing in Diamonds VS Investing in Gold
Are there any differences between investing in the two commodities? Yes, there are, but there are similarities too. We shall have a breakdown of the two (similarities and differences) to help you decide which commodity is worth investing in.
Some of the similarities in investing in gold vs diamonds are as follows:
1. Both have no fixed price
Due to market forces, there is no fixed price for the two commodities. However, the price fluctuation is not that huge, which explains why these are some of the most stable investment tools in the markets.
2. You can use both commodities for long-term investment
Even though diamonds don't hold value to the same degree as gold, both items can fetch you profits when the time to re-sell them comes.
Contrary to popular belief, there are several differences between investing in diamonds and gold. Let us point them (differences) out for you so that you can have an easier time choosing the ideal option to go for.
Gold can be traded in the financial markets; therefore, you do not have to handle the physical good. However, there are no well-established ETFs where diamonds are the underlying assets, implying that you have to physically handle the actual commodity to trade it.
The most convenient way of storing them is through safety deposit boxes, which most banks do. Luckily, diamonds do not take up a lot of space and are, therefore, easy to store.
Gold can be stored in units of bars and coins but may need huge storage vaults to hold them securely.
The gold market is highly liquid, and once the time to dispose of your gold bars comes, it will be pretty easy to sell/re-sell them. The commodity can be bought by banks and governments and can even be used as a currency.
On the other hand, diamonds are a bit difficult to sell since they are more of luxury goods than currency. In fact, some retailers plainly refuse to buy pre-owned diamonds because most of their clients naturally prefer freshly cut ones.
That’s not the case with gold.
The other difference comes from availability and formation, where gold can only be formed close to the earth's crust and needs extensive mining. Diamonds, on the other hand, can even be made in the lab, provided there is sufficient temperature and pressure. Therefore, you can be guaranteed that gold will always remain scarce as no lab in the world can produce it.
Still to do with rarity, gold is made up of components such as neutron stars, that are hard to find in this world. On the other hand, diamonds are mainly composed of carbon and graphite (the ones in pencils), which are in plenty in the world.
Besides that, gold is fungible, whereby you can interchange your gold bars for others without losing any value in the process. This may explain the popularity behind unsegregated storage in the gold IRA world. This is impossible to do with diamonds, as each unit is unique in its own right. For instance, it is nearly impossible to find two pieces of diamonds with the exact color, cut, and size.
6. The Pricing
When it comes to the pricing of the two commodities, we find that gold has more stable and uniform pricing as compared to diamonds. Gold’s pricing is solely affected by weight and purity. For instance, if you pick any two ounces of 24-karat gold, they will have the same price.
On the contrary, the price of diamonds tends to vary a lot and is determined by the number of carats you buy, i.e., the more you purchase, the cheaper it becomes. Diamond retail investors tend to ignore the diamond indices as they do not paint a picture of the secondary market activity.
As such, it is easier to project potential returns with gold than with diamonds.
Advantages and disadvantages of gold
Now that you know the differences between investing in the two commodities, let us summarize the benefits and drawbacks of dealing with each one of them, starting with gold.
- Some of the advantages of investing in gold include the following:
- Highly stable and resilient even during economic downturns
- Since it can’t be made artificially, it remains unique and rare
- It can serve (has served) as a trading option when cash has little or no value
- Can be used to hedge inflation due to its relative stability over the years
Just like everything else under the sun, gold has its fair share of disadvantages, and we shall highlight them below:
- The big players in the industry may influence gold prices when you don’t have any money to make your move
- Difficult storage and transfers. In times of need, you will have to be ready to head over to wherever you had stored your gold to make the withdrawal
Advantages and Disadvantages of diamonds
Just like gold, there are advantages and disadvantages to investing in them. Here is a summary of the benefits and drawbacks of diamonds.
What are the advantages of investing in diamonds? Here they are:
- Compact to make them easy to store and move around
- Offer great money returns provided the 4Cs (cut, color, clarity, and carats) are in check
- A diamond with an authenticity certificate is sure to gain or retain value over time
- Durable and won't wear or break apart easily
- You can use diamonds on different jewelry, such as rings and necklaces
On the other hand, diamonds also have their drawbacks, and we have highlighted them below:
- They can be made in the lab, and as such are not as rare as gold
- Diamond prices are not universal as the precious non-metal is not fungible
Which one should I invest in?
After comparing and contrasting the two commodities, we conclude that gold is the best investment alternative. This is because many investors consider it a safe investment, and it is easy to see why.
First, gold has a reliable return and can withstand inflation. So, no matter how turbulent the market becomes, gold prices remain stable. Besides that, gold is a rare commodity and will always be, implying its price will remain high for years to come.
Diamonds are not entirely bad as they have a high resale value. In addition to that, they also do an excellent job of retaining their value in the long run.
But ultimately, gold is the better, more established way to store wealth for the long haul.
Even though gold and diamonds are excellent investment choices that can help diversify your portfolio, the former offers more stability and can better withstand inflation and other market forces. Further, gold has been around longer, i.e., centuries, and has persistently stood the test of time.
That said, diamond still has its unique advantages although we think that it’s better off left for the jewelry market as opposed to the highly demanding financial markets.
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