Tags: Money | gold | diamonds | investment

Is Gold Better Than Diamonds as an Investment?

By    |   Sunday, 14 June 2015 10:22 PM

Investors considering tradable assets have plenty to consider when weighing the benefits of investing in gold or diamonds.

Gold has been an investment opportunity for generations. You can own the physical metal by having coins or ingots in your possession or invest in it through an exchange-traded fund (ETF). Diamonds may be forever according to De Beers, but their use as an investment asset hasn't been as widespread.

Actual gold coins and ingots are considered collectibles for tax purposes, according to Investopedia. So are diamonds. The downside to collectibles is that they are taxed as ordinary income if you sell them within one year of buying, a rate that can be as high as 28 percent. So for tax purposes, gold and diamonds are the same caliber of investment.

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Until the late 1980s, the world’s diamond market was dominated by De Beers, which kept the supply scarce to keep prices up, according to Business Insider.

In addition to this strategy, it launched a highly successful marketing strategy, the “a diamond is forever" campaign, which ensured high demand by making diamonds the symbol of eternal love, according to The New York Times.

These actions helped push the price of diamonds high enough so that they were bought as investments by the well-to-do. When gold prices begin dropping, many investors consider diamonds as a good financial move for regular investments with physical possession or through ETFs, according to The Fiscal Times.

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One problem with investing in diamonds historically had been the inability to measure diamonds against themselves because they vary in weight, color, clarity, shape, proportion and other factors. World standards for the value of diamonds have helped open the investment market to diamonds.

Like gold ETFs that are backed by a physical inventory of the metal, diamond ETFs can be backed by an inventory of gemstones. An ETF provides investors with a certificate guaranteeing ownership of the stones so that you can take possession of them if you wish.

There is no efficient way of buying diamonds. Most are bought and sold on the retail market. Because of this, the price is artificially high, making diamonds difficult to sell at a profit. Investors need to do research on buying diamonds through a wholesaler if they choose to own gemstones as an investment.

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Investors considering tradable assets have plenty to consider when weighing the benefits of investing in gold or diamonds.
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Sunday, 14 June 2015 10:22 PM
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