With the outlook for the global economy grey and dull right now, some might want to consider an investment with a bit more sparkle.
Investing in jewellery and precious gemstones is one way for wealthier investors to add a bit of shine to their portfolio.
While stock markets stagnate, cash loses its crown, property looks pricey and commodities crash, a diamond is still forever. Emeralds, rubies, sapphires and amethysts also have their charms.
Beauty, as ever, comes at a price. Investing in diamonds, gemstones and pearls can be risky, and you need to know what you’re doing.
To make it work, you have to immerse yourself in the subject. For many people, this will be a privilege and pleasure, rather than a chore.
You can, of course, buy jewellery in almost any mall in Dubai and the UAE. Or you could head to the Gold Souk in Deira, Dubai, and start bargaining. With the gold price currently hitting a fresh four-year low of $1,196 an ounce, prices are much lower than in September 2011, when gold peaked at $1,920.
That makes now a tempting buying opportunity, but don’t expect to make a quick profit, because movements in the gold price are almost impossible to predict, and it could fall further still.
“Gold and silver continue to look anything but precious right now, as a combination of the strong US dollar and stifled global demand force prices lower,” says Alistair McCaig, market analyst at the financial spread betting specialists IG Index.
Gold is denominated in dollars, so when the greenback strengthens, it becomes more expensive for buyers in other currencies.
Gold is on track for its second year of annual declines, and could take another hit in 2015, if the US Federal Reserve hiked interest rates. The yellow metal doesn’t pay interest or dividends, which means it struggles to compete with yields on bonds and stocks when interest rates rise.
Serious investors may prefer to invest in precious stones such as white and coloured diamonds instead. Be warned, this can also cost serious money.
Alexandra Kinderman at the auction house Christie’s says investing in jewellery is like investing in the stock market for the first time. “If you don’t know what you’re doing, you will make mistakes. You must do your research before you part with your money.”
Don’t enter the market expecting to make a quick profit, she adds: “If you just buy a diamond then put it back on auction a few months later, you will probably lose money, especially after deducting the auctioneer’s commission. Your piece needs to be off the market for a time, to attract buyer interest.”
If you’re serious about investing in diamonds, you need to start with at least $200,000 or $300,000, she says. “Although there are thousands of diamonds priced at between $50,000 and $100,000, they don’t always offer the best quality, cut or colour, and are less likely to appreciate in value.”
Christie’s holds 26 jewellery sales a year, in Amsterdam, Geneva, Hong Kong, London, New York, Paris and Dubai.
You don’t need to attend the auction in person, you can bid over the internet or make an absentee bid, setting a maximum price in advance.
Investors can visit the Dubai office pre-auction to talk to specialists, learn about the wider market and experience an auction first-hand.
“If you fall in love with a piece and don’t care too much if its value rises, by all means buy it,” says Ms Kinderman. “Otherwise, do your homework diligently before you bid. Examine retail prices. Visit dealerships. Read Rapaport magazine or visit Diamonds.net. Find out exactly what you need to look for if buying, say, a diamond or sapphire, and check the prices paid for similar pieces.”
When investing in a piece, look for beauty, rarity, quality and provenance.
Jean Ghika, director of the jewellery department at the auction house Bonhams, which held its inaugural Middle East auction in Dubai, in March 2008, says investors should focus on jewellery signed by recognised makers, as proof of quality and authenticity. “Cartier, Van Cleef & Arpels, Boucheron, Tiffany and Bulgari are all highly collectable. Always buy the best you can afford. If you are buying a diamond, focus on colour, clarity, cut and carat, rather than size,” she explains.
Insist on seeing a gemological certificate, which gives you an independent analysis of the stone, she adds: “The most reputable laboratories are The GIA, the SSEF and Gubelin. Always check the condition carefully, especially on antique pieces.”
Signed period jewellery is popular right now, especially from the art deco period, which has attracted strong demand for years.
Ms Ghika says you might also consider high-quality items from the 1960s and 1970s, signed by Cartier, Van Cleef & Arpels, and Boucheron. “They are often of flamboyant design with interesting stone combinations.”
She also tips a small group of British designers from the same era who viewed jewellery more as an art form. “Andrew Grima was a real pioneer, his work is increasingly sought after by collectors, while Stuart Devlin, Charles de Temple and John Donald are other names to look out for,” she adds.
Meanwhile, natural pearls have experienced enormous growth, with prices rising several times over the past 10 years, and no sign of interest waning, Ms Ghika says. “It can take years for one single pearl to form and often decades to complete a single strand of well-matched pearls, hence the competition to secure the best.”
Unless you are buying high- value items with a known resale price, jewellery won’t necessarily prove a glittering investment, says Keren Bobker, an independent financial adviser at Holborn Assets in Dubai and The National’s On Your Side columnist.
“There is a massive difference between a piece with unique stones, a famous previous owner, or a good story behind it, than an item from a high street retailer. The fabulous jewels that were owned by the late Elizabeth Taylor, which were exhibited at Emirates Tower in Dubai a few years ago, are a good example.”
Celebrity sells, as in almost everything else these days. The diamond eternity ring Joe DiMaggio gave to Marilyn Monroe in 1954 would normally be worth just $3,000, but it fetched $772,000 at Christie’s New York in 1999.
“Often you will get better value from old or antique pieces, especially if the item is in a style that is not currently fashionable, as these things often go in cycles,” says Ms Bobker.
The Edwardian “belle époque” era is currently fashionable, while Victorian jewellery is far less popular, because the settings are heavy, and doesn’t always go well with modern fashions.
If you want to invest in precious metals, gold bars and bullion may be a better bet, Ms Bobker adds: “Like many alternative investments, you might make some money from investing in jewellery over the years, but it should only ever represent a small percentage of your portfolio.”
Jewellery may not always prove a dazzling investment, but at least if you don’t make a profit from your purchases, you still have the pleasure of owing something beautiful.
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