Maurizio Spoldi, CEO of DSC, Diamond Service Company, explains in the second part of this interview what the future for the investments in diamonds and what suggestions he would give prospective clients.
From an investment perspective, will something else take the place of diamonds in 10 years, when there will be no new extractions? Or will there be no need for this?
«There will be no need because the amount of material that has been brought to the market in recent years will be enough to convey this type of product to the investment world. Jewelry no longer uses the amount that it did until a few years ago, the world has economic problems and so the philosophy of consumption changed in the diamond world. Today real diamonds, at some level, are for a niche of very few people, and this has already changed the use of the raw material.
The investment in diamonds was born in virtue of this availability of material that was not placed in the jewelry sector. In my opinion, within the next ten years all that will be extracted, or at least 70-80 percent of it, will help strengthen the investment market».
What was the percentage in the last few years?
«In the order of 5-7 per cent. However, the growth is exponential, 2018-19 could already be at 25 percent. The raw material lends itself to a very interesting revaluation. It will be a rare good and consequently it will be facilitated by all regulations that currently revolve around the diamond and make it attractive to this market».
What are these laws?
«First of all, taxation and freedom of movement of the asset. Diamonds, while maintaining high enough values in a small space, still enjoy an absolute freedom of movement, unlike other goods. Let's take the example of gold: today moving 10, 20, 50 thousand euros of gold is a problem because there are laws and regulations that block the freedom of movement. Diamonds, however, have no such problem».
So, potentially, people could travel to the USA with € 50,000 in diamonds in a pocket?
«People can go wherever they want, because diamonds are still seen as a commodity. Diamonds are taxed at the beginning, unlike gold, with VAT which, if you will, is a high cost because it affects 22 percent on the Italian market, but if we think that this one-off 22 percent fully liberalized our capital, with an extremely important reassessment within a few years, it is an extremely interesting taxation, because the diamond revaluation is not taxed. Gold, on the other hand, is taxed in Italy at 26 per cent of the revaluation, even if it were to double the value in ten years - I speak of the Italian taxation to have a reference. I pay a one-time 22 per cent but I have a free good, at the bearer, and if tomorrow morning the value doubles I do not owe anything to anyone».
What was diamonds revaluation in the last ten years?
«It was very strong in the first five years and slow over the past five. I think it is due to the fact that the two companies that extract, both the Soviet ALROSA and the Anglo-American De Beers, manage extractions by virtue of the request and, since there was a very significant drop in jewelery, they extracted less, to protect the price and the value. It was a driven slow growth, but it is not a problem in view of the fact they will have to manage a shortage of raw materials in the coming years».
In general, are the features to look for in investment diamonds the same as in jewelry diamonds?
«Yes, they are the same. I suggest always to keep the cuts in investment diamonds not too big because if we have to replace them on the market, commercial cuts are those that go from half a carat to one carat, beyond these measures time for relocation is likely to lengthen. So, focusing on traditional investments for a person, for a family who received some sort of heritage, I would not go over a carat».
Are diamonds traded more easily than other goods?
«There is no comparison, diamonds today are exchanged almost like normal currency in paper. They have a precise reference list, in dollars, made in New York, which is the Rapaport, and this list has international importance. Currency is expressed in dollars, therefore on the international market it is recognized. This also contributes to an easy rotation of the product and makes it an alternative to paper, something that gold can’t be, contrary to what we experienced in the past years when it was the alternative to the paper, so much so that currency was printed only if there were gold reserves of equal value. This has now been dropped, which means that we are printing currency in the face of nothing, thus the diamond was taken as a reference point for people who want to protect their assets.
It is easy also in possession, it is at the bearer, so it can even be bequested or moved, lending itself perfectly. Problems involve the complexity of the raw material, so investments can’t be done by the end customer alone, superficially. These investments must always be undertaken by a professional. Our role is to give comprehensive advice to protect the final consumer».
Are there any problems related to commissions on sales?
«The problems regard the Italian market, in particular, where the market for the sale of investment diamonds was created through the banking system. The prices balance was altered: selling through banks, given the commissions that the same were asking the other party for the relocation, no better solution was found than to alter the sale price.
All diamonds sold through the banking system are not sold through the international Rapaport price list, but through a list created ad hoc. It is clear that in this case the investment was altered. Commission costs were created that were disproportionate to the actual market trends. Keep in mind that the commission we ask our customers is in the order of 10 percent and it covers the sale and relocation of the good. Given our clients’ investment at 100, they pay a 10 per cent at the beginning of the path and they are protected until the divestment. This protects them on all fronts. The banking system, according to the unofficial information that we got, charges 15-25 percent to the distributor, so this led to a very far from reality price list, so when customers want to monetize very high commissions are applied
What is your suggestion to potential clients?
«Please contact professionals providing proper advice, which also includes a proper commission. We must protect our customer's investment throughout, with a commission that does not affect the revenue of the investment itself. If a diamond listed at 100 is paid 180 it is clear that we have precluded our investors any type of annuity. I feel that 10 percent is the correct commission including the two moments, both the purchase and resale, and dealing with a 360 degrees set of advice throughout the investment path, such as advice on when is the time to sell, what to sell, what stones any time should be monetized or not. This is the role of a good adviser, the complete picture that only an expert can have».
What should inexperienced consumers look at?
«The things to look at are the correct original certification, released by a credible international institution, ensuring that this document is original and that the stone that is submitted with the accompanying certificate is actually the one connected to the document. For a normal consumer the only easy detail I can think of is to verify that the diamond belt reports the correct number of the certificate and that the same is recorded on the international website of the laboratory that issued it, so that these data coincide and give us a minimum of tranquility, otherwise there would be no other way to check the accuracy».
CEO DSC Investment
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Luncheon presentation by Hedge Invest (Suisse)
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