Coloured diamonds are the world’s most concentrated form of wealth. A coloured diamond portfolio worth millions of dollars fits inside an envelope and can easily be transported in your coat pocket. They can be transported quietly and legally, and sold globally in most major cities.

These facts alone make coloured diamonds worthy of consideration by sovereign individuals seeking discreet investment opportunities. But coloured diamonds are also hot investments.

Since formal records were first kept at the beginning of the 1970s, prices for the highest grades of coloured diamonds have increased in value by an average of between 10%-15% per year, with rarer colours and higher grades enjoying the greatest appreciation. In addition, this appreciation has statistically been non-correlated to the stock and bond markets, an important consideration for investors seeking a diversified portfolio.

And, price appreciation is increasing. “The market for natural coloured diamonds is very strong at the moment and prices have risen by 25% within the last six months,” says Andrew Coxon, vice president of De Beers in London. If that pace continues, an investment in natural coloured diamonds today could double in value in the next 12-18 months. In addition, because of a major development in the coloured diamond industry I’ll describe momentarily, that pace could pick up considerably.

A Major Development
All diamonds are relatively rare. But coloured diamonds are far scarcer than white diamonds. Indeed, for every 10,000 carats of diamonds mined, only one carat will be a fancy coloured diamond. That rarity has appealed to persons of wealth and discretion for centuries. Indeed, many of history’s really famous diamonds, including the Hope Diamond and the Tiffany Diamond, are coloured diamonds.

Some of today’s most popular coloured diamonds are the purplish pink and pink diamonds from the Argyle mine in Australia. Until the mine opened in 1985, pink diamonds were almost unknown, and today, this mine accounts for over 90% of the worlds pink diamond supply. However, less than 0.1% of the mine’s output are rare pink diamonds. Indeed, one year’s Argyle production fills a small truck, but the pink diamonds fills only half of an ashtray!

The best pink diamonds came from the alluvial deposits; the watery areas surrounding the Argyle mine. However, Argyle’s owner, Rio Tinto, shut down alluvial diamond recovery in 2003. As a result, the quality of the pink diamonds coming out of the mine since then has gradually and consistently gone down.
Recently, Rio Tinto announced that it will shut down all open-pit operations at Argyle in 2008 and convert the facility into an underground mine, this is expected to last until 2018 when the mine will completely close its operation.

Experts agree that with underground mining, there will be fewer quality stones, average sizes will continue to decrease and the supply will drop by at least 40%. All of these factors are likely to lead to a substantial increase in coloured diamond prices and when the mine completely closes the prices of these diamonds will become unobtainable for the average wealthy person!

Real world auction results support this conclusion. coloured diamond prices continue to achieve record prices at the world’s auction houses with prices consistently above USD $100,000/carat for high-quality stones.

April 1998 New York Christie’s 539 Oval 1.02 Intense purplish Pink, USD $58,529/carat

December 2004 New York Sotheby’s 351 round 1.23 Intense purplish Pink, USD $143,089/carat

Today in 2006, each of these diamonds would easily reach in excess of USD $250,000/carat.

Fierce Competition
Since the end of 2004, momentum has continued to build in the coloured diamond market. Each year, Argyle sells its production of pink diamonds via a sealed bid process. At its 2005 sale, 60 Argyle pink diamonds were on offer. While the quality of some of the stones was lower than in previous offerings, competition was fierce, with bids starting at USD $100,000/carat. Every stone sold!

With demand for coloured diamonds continuing to grow and becoming very scarce, experts predict coloured diamond prices will significantly outperform the historical averages over the next five years. According to coloured diamond expert Stephen Hofer, author of Collecting & Classifying Coloured Diamonds, “Supply is down and will decrease further, demand is up significantly and as a result prices are going to continue to go up, especially for the highest graded stones.