Successful Diamond Investment: Smart Capital Allocation and Avoiding Fraudster Tricks
Diamonds, the most expensive natural gemstones, are in demand for long-term investments. Their popularity is largely due to effective advertising throughout the last century, making them highly desirable in the jewelry industry. Apart from being ornamental, diamonds also have industrial uses. Technical diamonds, lower in quality, are utilized in equipment and component manufacturing, highlighting their technological value.
The majority of global diamond mining and production (80%) is controlled by five companies: De Beers, ALROSA, Rio Tinto, Petra Diamonds, and Dominion Diamond. Investment opportunities lie in these companies through stock exchanges where their securities are listed, enabling speculative trading.
However, the diamond industry is fraught with fraud at various levels, from jewelry manufacturers to banks and counterfeit brokers.
How Scammers Trick People into Investing in Diamonds and Related Financial Assets
Diamond fraud occurs both offline and online. Swindlers execute schemes with actual stones and deceive investors on the internet. There are numerous methods they use to empty pockets. Let’s discuss some of the most common ones.
Offline scam on investing in diamonds
The most common scam involving diamonds is substitution, encountered both during purchase and in jewelry repair.
A notable case was with Kay Jewelers, which sold items with fake stones. Customers discovered this only when trying to sell or repair the jewelry. After numerous complaints, the company agreed to compensate the victim who brought attention to the issue. Diamonds are also swapped in repair shops, highlighting the importance of choosing reputable service providers.
Counterfeits and Modifications of Diamonds
Another prevalent gemstone scam involves artificially enhancing a diamond’s quality, like improving its clarity by concealing internal flaws and cracks. The fewer defects a diamond has, the higher its value. Unscrupulous jewelers often hide diamond flaws, for instance, using special fillers to mask cracks. This not only falsely inflates the price but also significantly weakens the stone. Fillers can deteriorate the diamond’s structure, making it more fragile.
Scammers also create “composite diamonds” by fusing two smaller stones to form a larger one, either horizontally or vertically, facilitated by specific cuts. Identifying these composite stones is challenging and typically requires specialized laboratories. Most labs, upon detecting such manipulations, report the stone as having undergone enhancement.
Rating Forex comments: It’s essential to understand the non-linear relationship between a diamond’s size and price. Larger diamonds are rarer, and swindlers who fuse two or more cheaper diamonds essentially create value from nothing, which is deceptive.
Manipulations in the sale of diamonds
When it comes to diamonds, sellers often inflate prices, marking up items and stones by 3-4 times and then offering a 20-30% discount, leading many customers to overspend significantly.
To determine the true value of diamonds, it’s essential to consult independent sources like rapnet.com. This platform serves buyers (both retail and wholesale), jewelers, and dealers, providing detailed pricing information.
Its main page features a convenient search function that helps easily find a suitable stone and understand its average cost. This tool also aids in identifying unscrupulous stone sellers.
Stores frequently employ a tactic where the price of rings and other jewelry items is based on the total carat weight of all the stones, calculated as if it were a single large stone instead of several smaller ones. Remember, the price-size relationship for diamonds is nonlinear. Hence, such pricing by sellers is deceptive.
Diamond-based Pyramid Schemes
There are fraudsters who use diamonds as investment objects, promising quick profits. For instance, they might offer up to 25% return in just a few days.
One story from Belarus involves a local transporting artificial diamonds from Moscow and finding financiers. Initially, he started with small amounts, returning his with profit. After repeating these profitable deals, he then asked for significant investments, sometimes tens of thousands of dollars, gave the investors stones for safekeeping, and disappeared.
In early 2023, five Italian banks were investigated, resulting in the seizure of over €700 million. The banks were supposed to offer their clients diamonds from two companies with promotional materials. Instead, bank managers presented the diamonds as protective investments, claiming they would yield 3-4% annually and protect against inflation. Thousands were affected, and many plan to file a class-action lawsuit.
It was found that diamonds lose up to 50% of their initial value after purchase. One victim paid €400,000, only to discover that the real value of the stones was just 20% of what they had invested.
It turned out that half of the funds were allocated to VAT, banking services, and company profit. To convert the investment back into cash, an additional 10% fee of their value would be required. Clients were not informed about these details. Although they were provided with all necessary documents, none of the managers highlighted these associated costs.
Online scam: Investment in brilliants
There are numerous online scammers involved in diamond-related frauds, including cryptocurrency projects launching ICOs. One example is the Diamond Reserve Club World scam. Its owner claimed to have started a business and hired staff, but the U.S. regulator found no effort had been made to initiate the business; the owner was merely collecting money from investors.
Hundreds of high-yield investment programs (HYIPs) offer passive profits from investments in various plans, some claiming to earn from diamonds. In reality, they are as deceptive as financial pyramids.
HYIPs don’t conduct any real economic activity; they merely redistribute capital among participants at best, and at worst, steal all the funds. Fake brokers also exist, urging investments in diamonds. They usually simulate trading activities only to drain the invested money.
Cheated in diamond investments? Rating Forex will recover your funds. We handle all cases, even the most complex ones. Our consultations are free of charge.
How to earn on investing in diamonds
Profiting from diamonds is possible, but the key is to invest not in jewelry but in the stones themselves or in companies that deal with them.
Is It Worth Investing in Diamonds?
Investing in physical diamonds is sensible only for long-term prospects, as their continuous price increase protects the investment from losses.
Rating Forex cautions that such investments entail additional expenses, making the purchase of just one or two stones unprofitable. Larger capital is more suitable for substantial, long-term investments.
Companies involved in diamond manufacturing and mining are volatile but tend to grow in the long run. When selecting such assets, it’s important to remember that their liquidity might be lower than that of blue-chip stocks. Therefore, trading on large markets with many participants is advisable.
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