Investing

Gold vs. Diamonds: A Full Comparison

gold versus diamonds

In these tough economic times, Americans are looking for safe haven assets to help protect their financial well-being. While many Americans have become 401(k) millionaires in recent years, they want to hold on to that wealth rather than watch it evaporate during a stock market crash.

Fears of an economic downturn have been at the back of many people’s minds for years, and with inflation remaining problematic and the threat of recession growing, wealth protection has become an important goal for more and more people. But how to protect that wealth?

One way to protect wealth is to buy tangible physical assets with known value. Among the most popular of those is gold, which has a long-standing history as a store of value and safe haven asset.

But, you might ask, what about precious gems like diamonds? Couldn’t they also be a safe haven asset?

That’s a good question, and when it comes to gold versus diamonds there are some good answers too. So keep reading to find out whether gold or diamonds are right for you.

1 kilo gold bars

Advantages of Gold

There are numerous advantages to owning gold, but here are some of the most important ones, particularly as they relate to gold vs. diamonds.

1. Safe Haven Asset

Gold has been trusted as a safe haven asset for centuries. It has a reputation for performing well even when the economy is not, which is why demand for gold tends to rise during periods of recession or anticipated economic and financial turmoil.

During the same period that markets lost over 50% of their value during the 2008 financial crisis (October 2007 to March 2009), gold gained over 25%. And gold continued to gain even as markets struggled to regain their footing, finally setting its previous all-time highs in 2011.

2. Inflation Hedge

Gold also has a reputation as a hedge against inflation because it maintains its purchasing power over time. While the US dollar has lost 87% of its value since 1971, gold has gained over 6,000%.

During the stagflation of the 1970s, gold’s average annualized growth rate was over 30% per year over the course of the decade, well higher than inflation, and well higher than stock markets that largely floundered.

If inflation becomes entrenched today, and if we see a return to 1970s-style stagflation, many gold owners expect gold to perform similarly today as it did in the ‘70s.

3. Liquidity

Gold is in demand around the world, traded on exchanges just about 24/7. From India and China to New York and Chicago, gold is one of the most traded commodities on the market.

If you’re looking to buy or sell gold, you’ll be able to find it. And with both gold coins and gold bars being universally recognizable, there is a vast market out there for gold investors.

4. Portability

Gold is also an incredibly portable and compact store of wealth. All the gold ever mined in the history of the world can fit onto a soccer field to a depth of one meter.

A roll of 20 one-ounce gold coins can fit into your pocket but is worth enough to buy a nice car. A few of those rolls could buy a small house. And because gold markets are so widespread, selling that gold is relatively easy due to how liquid an asset gold is.

5. Price Transparency

Gold is also very easy to value. Most investment gold products are marked with their weight and purity, so you can easily determine what their metal content is.

While market values of gold coins and bars often carry a premium over the melt value of the gold in them, anyone can assess the melt value by determining how much gold is in the coin or bar and multiplying that by the price of gold that is quoted all over financial media.

6. IRA-Eligible

Gold is also, in certain forms, eligible for IRA investments. IRAs are generally forbidden from acquiring metals and gems, with the exception of certain US Mint gold and silver coins, as well as any gold, silver, platinum, or palladium coins or bullion meeting the minimum fineness requirements of future contracts.

In the case of gold, this means that any gold coin or gold bar that is at least .995 fine (99.5% gold), is eligible for acquisition by an IRA. With a gold IRA, you can enjoy the same tax advantages as any other IRA while still benefiting from the ownership of physical gold coins or gold bars.

cut round diamonds

Advantages of Diamonds

It would be nice to be able to talk about the many advantages of diamonds. But when it comes to diamonds, aside from the fact that they are nice and shiny, there aren’t many advantages to owning them.

Perceived Scarcity

About the only advantage of diamonds is their perceived scarcity. While it’s outside the scope of this article, the scarcity of diamonds is largely the result of their being controlled by the De Beers monopoly for over a century.

As the cartel breaks down, and as lab-grown diamonds become more prevalent in the market, the scarcity of diamonds will likely decrease, as will their price.

grading diamonds

Disadvantages of Diamonds

There are a lot more disadvantages to diamonds as an investment than there are advantages.

1. Low Resale Value

Among the most important disadvantages of diamonds is their low resale value. Yes, you may pay thousands of dollars for a diamond engagement ring, but you’re not going to be able to sell that ring for as much as you paid for it.

And who do you sell them to? There isn’t a vibrant and liquid market for diamonds and diamond jewelry like there is for gold, and you’ll most likely have to sell your diamonds back to a jeweler.

Because of the lingering impact of the De Beers monopoly and the way diamonds are distributed, you can expect to get a fraction of the price you paid when you try to resell diamond jewelry. Buying diamonds and expecting them to appreciate in value so that you can sell them later on very likely isn’t going to work out the way you expect it to.

2. Blood Diamonds

There is also the fact that blood diamonds exist, that is, diamonds that are sourced from conflict zones. At one point the De Beers monopoly tried to buy up as many diamonds from other producers as it could, in order to control supply.

But since blood diamonds now are viewed negatively in the marketplace, most diamond sellers attempt to trace the source of their diamonds to ensure that blood diamonds aren’t in their supply chain. Still, you can’t always guarantee that the diamonds you buy are 100% conflict-free.

3. Lack of Investment Options

If you want to invest in diamonds, the obvious question is: how? With gold you can buy gold coins or gold bars.

If you don’t want to buy physical gold you can buy gold exchange-traded funds or share in gold mining companies. But how can you invest in diamonds?

You could buy unpolished diamonds, but who would you sell them to? Once diamonds leave the primary supply chain, many jewelers aren’t going to be interested in buying them any more.

You could buy diamond jewelry. But jewelry purchases are very often driven by personal attraction. A ring or a necklace that might be appealing to one person isn’t going to necessarily appeal to everyone.

Diamonds are also not IRA-eligible investments, as IRA accounts are prohibited from acquiring gems. Whereas with a gold IRA you can make a tax-free rollover of existing 401(k) assets into a gold IRA, you can’t do that with diamonds.

And when was the last time you were able to hold diamonds in a brokerage account? Unlike gold ETFs, there is no equivalent type of ETF for diamonds.

The long and the short of it is, while you may be able to get your hands on diamonds, it’s going to be difficult to find diamonds that other people are going to want when it comes time for you to sell them.

4. Grading Difficulty

One of the problems with investing in diamonds is that they vary significantly in quality. Diamonds are judged by the 4 Cs: cut, color, clarity, and carats.

The shape in which a diamond is cut can determine how desirable it is. Color is important too, as colored diamonds often aren’t in high demand.

Clarity of a diamond can be difficult to judge if you aren’t a gem expert. And carats, well, once a diamond is cut, it won’t grow any larger.

The jewelry industry has a reputation for being very insular. And most people who don’t deal with jewels on a regular basis, i.e. daily, don’t really know how valuable the jewels they have really are. They have to rely on experts to tell them.

5. Easy to Get Scammed

That reliance on experts can get you into trouble with diamonds and other precious gems. How many times have you heard stories of a woman taking her diamond ring in to get worked on, only to receive it back with stones that seem inferior?

Of course, in those cases it’s the word of a layman versus the word of an expert, so there’s little remedy. But it points out that in a market in which the experts, jewelers, have so much more experience, knowledge, and expertise than the buyers, it’s very easy for the buyers to get scammed.

More likely than swapping stones would be a buyer buying a stone that comes highly touted, only to find out years later from another jeweler that the quality was highly overrated.

While the gold market has its fair share of scams too, there are steps that even an inexperienced gold buyer can take to make sure that you don’t fall victim to a gold scam.

bars of gold

Disadvantages of Gold

Lest it seem like we’re just piling on diamonds, there are some disadvantages with gold too. Here are a few of them.

1. Counterfeiting

With the high price of gold, it’s a very tempting target for counterfeiters selling fake gold coins and gold bars. And with every potential gold buyer looking for a good deal, it can be too easy to get fooled by a deal that seems too good to be true.

If you’ve never purchased gold coins or gold bars before, how do you know that the gold you’re buying is authentic? There are easy ways to check, such as measuring and weighing, that can help eliminate obvious fakes.

But one of the easiest ways to avoid counterfeit gold is to work with trusted gold sellers. Goldco works with mints around the world to source our gold coins directly from the mints that produce them, ensuring that the gold coins you buy from us are 100% authentic.

2. Storage and Security

Gold is valuable enough that you’re going to need to think about storage and security. With a gold IRA, that’s already taken care of, as the gold in your gold IRA must be managed by a gold IRA custodian and stored at a bullion depository.

Still, that imposes an extra cost, normally a couple hundred dollars a year, which can eat into your gains. And if you choose to buy gold coins directly and store them yourself, what do you do?

You could store them at home in a safe, open a safe deposit box, or if your purchase is large enough, choose a bullion depository to store it. In any of those cases, however, you’re going to pay for storage, and the more you pay, the more secure your gold will generally be.

3. Some Investments Are Less Than Ideal

Not all forms of gold are the same. Owning physical gold coins and gold bars remains a popular method for many gold investors, but there are alternatives, such as gold exchange-traded funds (ETFs) and owning shares in mining stocks.

The drawbacks to owning gold ETFs is that you don’t actually own gold, just shares in a fund that claims to own gold. You can’t convert those shares into physical gold, and given the sometimes opaque nature of the ETF’s custodial gold arrangements, you don’t actually know if the ETF owns the gold it says it does.

Gold mining stocks aren’t a surefire bet if the gold price is going up because there are numerous other issues that play into stock valuations. Even if gold mining revenue increases, higher energy costs, transport costs, political unrest, labor strikes, or environmental cleanups could impose costs on gold miners and depress the price of their stocks.

Commodities and Tangible Investing

When times get tough, it’s natural for people to want to reach for the safety and security offered by tangible physical investments. But while both gold and diamonds are tangible physical assets, their utility differs immensely.

When it comes to gold vs. diamonds, choosing one over the other will be dependent on your own financial goals and financial needs. But if you choose to buy gold, we hope that you’ll choose to do business with Goldco.

With over $2.5 billion in precious metals placements and over 6,000 5-star reviews from our satisfied customers, we have worked hard to become one of the best and most trusted gold companies in the country.

Whether you choose to roll over 401(k) assets into a gold IRA or choose to buy gold coins to store at home, Goldco has gold products that can suit every need. If you’re looking to protect your hard-earned wealth with gold, give Goldco a call today.

 

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