In Times Of Crisis, Diamonds Can Be An Investor's Best Friend

Indeed a girl's best friend
Indeed a girl's best friend
Horst Peter Wickel

BERLIN - She was an icon of glamour and beauty. But Marilyn Monroe also knew how to appreciate the timeless value of compressed carbon. When she sang "Diamonds are a Girl’s Best Friend," she was offering a not-so-subtle investor tip to bank on the precious stones.

These days, with the euro crisis, investors are increasingly turning to people like Reinhard Paul, who knows all about gold and platinum, pearls and precious stones. But the favorite stone of this jeweler, whose store is on Kaiserstraße, Nuremberg’s fanciest shopping street, is the diamond.

Since 1985 Paul has specialized in diamonds and colored gemstones, and he is the chairman of the Deutscher Diamant Club (German Diamond Club), an association of German jewelry retailers.

Paul considers jewelry made of skillfully cut and set diamonds an "accessory to the personality of the wearer, male or female." He points out that for many years they have found favor not only with American and European women but with wealthy men and women in China, India, and the Gulf states.

He has noted a particularly sharp increase in demand for diamonds “bought purely for their investment value” in the past few months. He believes that, along with precious metals like gold and platinum, gemstones like diamonds are also suitable as a capital investment, in the sense of securing capital long-term. According to Paul, the prices for even the smallest diamonds have soared over the past year.

A number of experts believe that prices will rise between 21% and 32% over the next five years. In 2012 alone, the sector has seen 7% growth. Paul recalls that in 1970, you could get a good-quality one-carat stone for $4,000; today that same stone would cost you $15,000, and if it were absolutely top-quality, you could double that figure.

A lot of value in a tiny package

And indeed, investment advisors the world over have discovered the advantages of diamonds. They pack a lot of value into a very small space. As easily transportable items with a stable value, they constitute a nice emergency reserve. Unlike gold and platinum, the value of diamonds is not quoted on a daily basis. Diamond exchanges do not have official rates.

Anxious investors, looking at investments that are considered stable in these uncertain times and thinking of buying diamonds, should, however, check out and heed the warnings of experts and consumer advocates. Many investors have had bad experiences investing in diamonds short-term, when they’ve tried to reconvert the jewelry quickly into cash.

If you get more than two-thirds of the original purchase price short-term for a jewel, you’re doing very well in many cases, as VAT and profit margins can be a third of the price. But some diamonds are virtually unsellable. Reinhard Paul says he’s observed many inferior-quality stones on the market.

Stiftung Warentest, a German consumer advocate group, warns inexperienced buyers with no diamond knowledge about potential losses. While they say that diamonds costing between 2,500 to 50,000 euros and up are a good crisis-proof investment with excellent long-term prospects, they are ill-suited to buying speculatively and short-term.

Also, scams in the diamond business are increasing. Buyers are constantly warned to avoid sellers who advertise or cold-call and sell ignorant victims expensive soldered diamonds with fancy-looking provenances and certificates. To gain trust, sellers offer a buy-back guarantee – but only if the diamond is returned exactly as purchased, which effectively means that a jewelry expert would be unable to ascertain its value, because an evaluation requires dismantling the jewelry to examine it thoroughly.

With diamonds, the “four Cs” determine value: Carat for weight, Clarity for purity, Color, and Cut. Color is the most important quality, and the major price determinant. Large stones are much rarer than small ones, and a single 5-carat stone will always be worth more than five 1-carat stones.

Over the last 50 years, prices for uncut diamonds have almost always risen, and experts expect they will continue to rise over the next five to 10 years. At the same time, reserves are dwindling, and pessimistic forecasts say that the supply of raw diamonds will be exhausted within the next 20 to 30 years.

In the opinion of Reinhard Paul, investors who see diamonds as a long-term investment are on the right track. Jewelry is never suitable for speculation, or for short-term investment, he says. Its primary function is to be worn. "The best returns are the day-to-day joys of fine jewelry-- that sparkle in the eyes of the wearer."

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Ecological Angst In India, A Mining Dumpsite As Neighbor

Local villagers in western India have been forced to live with a mining waste site on the edge of town. What happens when you wake up one day and the giant mound of industrial waste has imploded?

The mining dumpsite is situated just outside of the Badi village in the coastal state of Gujarat

Sukanya Shantha

BADI — Last week, when the men and women from the Bharwad community in this small village in western India stepped out for their daily work to herd livestock, they were greeted with a strange sight.

The 20-meter-high small hill that had formed at the open-cast mining dumpsite had suddenly sunk. Unsure of the reason behind the sudden caving-in, they immediately informed other villagers. In no time, word had traveled far, even drawing the attention of environment specialists and activists from outside town.

This mining dumpsite situated less than 500 meters outside of the Badi village in the coastal state of Gujarat has been a matter of serious concern ever since the Gujarat Power Corporation Limited began lignite mining work here in early 2017. The power plant is run by the Power Gujarat State Electricity Corporation Limited, which was previously known as the Bhavnagar Energy Company Ltd.

Vasudev Gohil, a 43-year-old resident of Badi village says that though the dumping site is technically situated outside the village, locals must pass the area on a daily basis.

"We are constantly on tenterhooks and looking for danger signs," he says. Indeed, their state of alert is how the sudden change in the shape of the dumpsite was noticed in the first place.

Can you trust environmental officials?

For someone visiting the place for the first time, the changes may not stand out. "But we have lived all our lives here, we know every little detail of this village. And when a 150-meter-long stretch cave-in by over 25-30 feet, the change can't be overlooked," Gohil adds.

This is not the first time that the dumpsite has worried local residents. Last November, a large part of the flattened part of the dumpsite had developed deep cracks and several flat areas had suddenly got elevated. While the officials had attributed this significant elevation to the high pressure of water in the upper strata of soil in the region, environment experts had pointed to seismic activities. The change is evident even today, nearly a year since it happened.

It could have sunk because of the rain.

After the recent incident, when the villagers raised an alarm and sent a written complaint to the regional Gujarat Pollution Control Board, an official visit to the site was arranged, along with the district administration and the mining department.

The regional pollution board officer Bhavnagar, A.G. Oza, insists the changes "aren't worrisome" and attributes it to the weather.

"The area received heavy rain this time. It is possible that the soil could have sunk in because of the rain," he tells The Wire. The Board, he says, along with the mining department, is now trying to assess if the caving-in had any impact on the ground surface.

"We visited the site as soon as a complaint was made. Samples have already been sent to the laboratory and we will have a clear idea only once the reports are made available," Oza adds.

Women from the Surkha village have to travel several kilometers to find potable water

Sukanya Shantha/The Wire

A questionable claim

That the dumpsite had sunk in was noticeable for at least three days between October 1 and 3, but Rohit Prajapati of an environmental watchdog group Paryavaran Suraksha Samiti, noted that it was not the first time.

"This is the third time in four years that something so strange is happening. It is a disaster in the making and the authorities ought to examine the root cause of the problem," Prajapati says, adding that the department has repeatedly failed to properly address the issue.

He also contests the GPCB's claim that excess rain could lead to something so drastic. "Then why was similar impact not seen on other dumping sites in the region? One cannot arrive at conclusions for geological changes without a deeper study of them," he says. "It can have deadly implications."

Living in pollution

The villagers have also accused the GPCB of overlooking their complaint of water pollution which has rendered a large part of the land, most importantly, the gauchar or grazing land, useless.

"In the absence of a wall or a barrier, the pollutant has freely mixed with the water bodies here and has slowly started polluting both our soil and water," complains 23- year-old Nikul Kantharia.

He says ever since the mining project took off in the region, he, like most other villagers has been forced to take his livestock farther away to graze. "Nothing grows on the grazing land anymore and the grass closer to the dumpsite makes our cattle ill," Kantharia claims.

The mining work should have been stopped long ago

Prajapati and Bharat Jambucha, a well-known environmental activist and proponent of organic farming from the region, both point to blatant violations of environmental laws in the execution of mining work, with at least 12 violations cited by local officials. "But nothing happened after that. Mining work has continued without any hassles," Jambucha says. Among some glaring violations include the absence of a boundary wall around the dumping site and proper disposal of mining effluents.

The mining work has also continued without a most basic requirement – effluent treatment plant and sewage treatment plant at the mining site, Prajapati points out. "The mining work should have been stopped long ago. And the company should have been levied a heavy fine. But no such thing happened," he adds.

In some villages, the groundwater level has depleted over the past few years and villagers attribute it to the mining project. Women from Surkha village travel several kilometers outside for potable water. "This is new. Until five years ago, we had some water in the village and did not have to lug water every day," says Shilaben Kantharia.

The mine has affected the landscape around the villages

Sukanya Shantha/The Wire

Resisting lignite mining

The lignite mining project has a long history of resistance. Agricultural land, along with grazing land were acquired from the cluster of 12 adjoining villages in the coastal Ghogha taluka between 1994 and 1997. The locals estimate that villagers here lost anything between 40-100% of their land to the project. "We were paid a standard Rs 40,000 per bigha," Narendra, a local photographer, says.

The money, Narendra says, felt decent in 1994 but for those who had been dependent on this land, the years to come proved very challenging. "Several villagers have now taken a small patch of land in the neighboring villages on lease and are cultivating cotton and groundnut there," Narendra says.

They were dependent on others' land for work.

Bharat Jambucha says things get further complicated for the communities which were historically landless. "Most families belonging to the Dalit or other marginalized populations in the region never owned any land. They were dependent on others' land for work. Once villagers lost their land to the project, the landless were pushed out of the village," he adds. His organization, Prakrutik Kheti Juth, has been at the forefront, fighting for the rights of the villages affected in the lignite mining project.

In 2017, when the mining project finally took off, villagers from across 12 villages protested. The demonstration was disrupted after police used force and beat many protesters. More than 350 of them were booked for rioting.

The villagers, however, did not give up. Protests and hunger strikes have continued from time to time. A few villagers even sent a letter to the President of India threatening that they would commit suicide if the government did not return their land.

"We let them have our land for over 20 years," says Gohil.

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