Gold or Diamond: Which Is A Better Investment?

Diamonds may be a girl’s best friend, but in an unstable market, gold is a smarter choice for investors.

A Better Hedge For Market Instability

gold pricesPrice of Gold over 1 Year, Source: Bloomberg diamond indexOverall Diamond Index over 1 Year, Source: polishedprices.com

2016 is an unstable and volatile year for the stock markets, which makes it a good case study to observe the performance of Gold and Diamond over the year.

Diamond prices took a dip in 2015 and continued inching downwards. The same cannot be said for gold prices, which took a leap due to an increase in demand during the later part of 2015.

In times of uncertainty, cash tends to flow to a traditional safe haven for investment, and gold fits the characteristics of a stable investment. Investors can seek refuge from the financial turbulence of the stock market with gold, making it a better hedge for market instability.

Liquidity

When it comes to retail investors like ourselves, we are always advised by older generations to hold physical gold as an investment. The reason behind such favouritism for gold over diamond is not backed by groundless assumptions.

In fact, if one is looking to pawn some of his jewellery at a recognised pawnshop such as Maxi-Cash, getting a better value for his gold is more probable. This is due to the higher liquidity of gold, as it is traded every day.

One might say the same for the value of diamond as an investment, but there is currently a lack of liquidity in the market for the precious stone because it is not sold as easily as gold.

Difficulty Assessing The Value Of Diamonds.

The main problem with investing in diamonds is that it is difficult to determine their actual value. Unlike gold, diamonds have various cuts, colours, grades, and sizes, which makes it harder to find out their value.

The fact that it is far less traded than gold also means that we cannot compare diamonds as easily as we can for two gold products. Costs have to be incurred to check on the value of the diamonds should there be a buyer. This is a more complicated process compared to gold products, where weight is the main factor affecting the price.

Read Also: Do Precious Metals Offer Wealth Protection?

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