Investing in Diamonds vs Gold: The Major Differences Explained

Diamonds and gold are two types of assets with a long-established symbolic connection to resilience, wealth, and prosperity. As investments, however, they behave very differently, making them suited to different kinds of investors.

In this article, we’ll compare investing in diamonds vs gold to help you determine which is the better choice for your portfolio. Among other characteristics, you will learn which of the two assets:

• Provides more investment options
• Is easier to sell at a profit
• Has a more transparent price 

Diamonds vs Gold Investment: An Overview

Although both diamonds and gold are tangible assets used in alternative investment strategies, they differ significantly in pricing, liquidity, and other aspects important to investors. The table below gives you a quick overview of the major differences: 

Aspect	Diamond	Gold
Price transparency	Low; prices vary by stone characteristics and seller	High; international spot prices and benchmarks are available
Liquidity	Low; resale can take time and involve discounts	High; established markets with high demand
Investment vehicles	Direct and industry investment	Direct, digital, ETFs, certificates, and industry investment
Income generation	None	None
Appreciation potential	Uncertain; varies by stone quality, rarity, and demand	Uncertain; depends on market conditions and investment demand
Valuation	Depends on individual characteristics, grading, and demand	Depends on weight, purity, and the market price

Bonus read: Find out more about alternative assets in our guides on wine, fractional art, and classic car investment. 

Gold as an Investment

To determine how gold performs as an investment, we’ll examine: 

1. How it’s priced 
2. How to invest in it
3. The pros of investing in gold
4. The cons of investing in gold

How Gold Is Priced

When you invest in gold, the price you pay in the transaction will depend on several factors:

• The amount of gold you want to purchase
• The purity of the gold, with higher purity increasing the value for the same weight
• The premium charged by the mint or the seller
• The prevailing market price of gold at the moment of purchase

Gold is traded on global markets, making its market price widely available. The spot price is the market price quoted on gold for immediate delivery, and it serves as a reference for pricing physical gold. The price you pay for your investment will typically be higher, as it may include a premium charged by the seller.

In addition to the spot price, gold transactions also rely on widely used benchmarks, such as the LBMA Gold Price. Set through electronic auctions held twice a day in London, the LBMA Gold Price is a common reference for pricing gold transactions worldwide.

How To Invest in Gold

You can add gold to your investment portfolio in several ways. Investing in physical gold means purchasing gold bars and coins, with the latter usually carrying higher premiums. 

You can also invest in physical gold by purchasing jewellery, but this option isn’t very efficient. Craftsmanship costs are added to the price of an item, and you might not be able to recover them when selling the item.

In addition to purchasing physical gold, you can also invest in: 

• Gold certificates: A popular option among private investors, it allows you to purchase physical gold without taking it into possession. The seller arranges the storage, and you can use the certificate to trade the gold or take possession of it
• Gold-backed exchange-traded funds (ETFs): ETFs that hold gold bullion can trade their units on a stock exchange, allowing you to buy and sell exposure to the price of gold through a brokerage account, without having to arrange for storage
• Gold mining stocks and funds: Instead of investing in gold, you can invest in companies that extract it or the funds that own those companies. Stock performance tends to follow the gold price, although management, operational costs, and the wider market also influence it
• Digital gold: Allows you to invest in gold in several ways, such as buying small fractions of vaulted gold through an app, holding tokens backed by physical gold, or keeping gold in an allocated account

Institutional investors and traders can also invest in gold futures and options, which are exchange-traded contracts on the future price of gold.

Pros of Investing in Gold

Two of the major reasons why private investors include gold in their portfolios are diversification and inflation hedging. As an alternative asset, gold often moves independently of traditional asset markets, limiting potential losses during market downturns. 

Gold’s value often rises during times of inflation: as currency depreciates, people turn to gold as a store of value, driving demand and increasing its price. 

Additional pros of investing in gold include: 

• High liquidity: Gold is relatively easy to dispose of in general, with some investment vehicles such as ETF shares and gold certificates being more convenient and less logistically challenging to offload than physical gold
• Hard asset: Gold is a hard asset with intrinsic value independent of a single company or government, which can make it seem less secure than intangible or traditional assets
• Appreciation potential: Historically, gold tended to increase in value over time. In the past 10 years, for example, it grew at an average yearly rate of 12.7%

Cons of Investing in Gold

When investing in gold, it’s important to consider the downsides as well as the benefits. For example, even though gold has performed well over the past 10 years, it was still outperformed by the S&P 500 index, which grew at an average annual rate of 13.8% over the same 10-year period. 

Gold prices can also be volatile in the short term. If you’re required to sell your investment quickly after acquiring it, you could be doing so during a price dip. 

Additional downsides of investing in gold include:

• Doesn’t generate income: Most vehicles for gold investment don’t generate income, except for mining companies, which may pay dividends
• Tax treatment: Depending on how you invest in it, gold might be treated as a collectible asset and incur higher tax rates (in the US, collectibles draw the maximum capital gains tax rate of 28%)
• Storage and insurance costs: Investing in physical gold can incur costs for secure storage, as well as insurance against theft or damage

Diamonds as an Investment

To examine diamonds’ value as an investment, we’ll look into: 

1. How they’re priced
2. How to invest in them
3. The pros of investing in diamonds
4. The cons of investing in diamonds

How Diamonds Are Priced

When investing in diamonds, the price you pay is determined by the following factors: 

• Weight in carats: Larger diamonds tend to be more expensive, and the price per carat can increase with the size of the diamond 
• Cut, colour, and clarity: These physical characteristics influence the appearance of the diamond and its rarity, driving the price 
• Origin: Natural diamonds tend to be more expensive than lab-grown ones
• Certification: Grading reports from reputable gemological laboratories can help verify a diamond’s characteristics and support its valuation

In addition to these factors, the price will also depend on the seller’s markup, as well as the current demand for similar stones. As opposed to gold, diamonds don’t have a single market-wide spot price. Price lists, such as the Rapaport Diamond Price List, can provide reference prices for certain types of polished diamonds, but they should not be seen as a guarantee of transaction prices. 

How To Invest in Diamonds

The most common method of investing in diamonds is direct ownership. Diamonds are sold individually by jewellers, specialised dealers, and auction houses, though they might also be bought as part of wearable jewellery. 

Diamonds are not typically used as underlying assets for investment vehicles such as ETFs. Their lack of standardisation and fungibility, and high storage, insurance, and appraisal costs make them impractical for the purpose.

You can, however, get exposure to the diamond industry by investing in shares in diamond companies or funds that own them. You can find options to invest in mining companies and retailers, and do so through direct stock ownership, ETFs, or mutual funds. 

Pros of Investing in Diamonds

Investing in diamonds can diversify your portfolio, as they’re an alternative asset that may exhibit low correlation to stock market movements. Investment-grade diamonds, especially the rare coloured diamonds, can also appreciate over time. 

Additional benefits of investing in diamonds include: 

• Durability: Diamonds are the hardest naturally occurring material in the world, and they don’t require specialised storage to preserve their condition
• Portability: Diamonds are small and light, and they can easily be transported and stored in small spaces 

Cons of Investing in Diamonds

Diamonds have significant drawbacks as an investment asset. Since they don’t have a centralised exchange for trading individual stones, and the market lacks standardised pricing and a broad pool of buyers, diamonds are typically considered illiquid assets. Selling them quickly at a fair market price can be challenging, and you may also struggle to recoup the initial investment even over a longer holding period.

Additional drawbacks of investing in diamonds include: 

• No income generation: Diamonds don’t generate a regular income like traditional financial investments or real estate. Any returns you plan to make must come from appreciation
• Additional ownership costs: Besides the price of purchasing diamonds, you should also consider potential insurance, storage, and appraisal costs
• Impact of lab-grown diamonds: The increase in availability of lab-grown diamonds has put some pressure on certain segments of the natural diamonds market, though investment-grade coloured diamonds might prove resilient to it

Investing in Gold vs Diamonds: Which Is Better?

For most investors, gold is the stronger investment choice. The transparent pricing and multiple investment vehicles make it easier to be an informed investor and get exposure to the asset. 

The standardised purity measures and the weight-based valuation can help investors compare prices across dealers and assess the market value of their potential investment. And when it’s time to dispose of it, gold’s liquidity means that finding a buyer will not be difficult, even though handling large quantities of physical gold can be more inconvenient than handling the same value in diamonds. 

With diamonds, every stone has unique characteristics, and the lack of a single market price applicable to all diamonds only makes it harder to value them consistently. Investors can also find reselling diamonds challenging, especially if they want to recover their investment. 

However, a certain section of the market, mainly investment-grade, high-quality coloured diamonds, may be appealing to investors who have the necessary expertise and access to the right buyers. 

What diamonds and gold have in common is that they’re portable assets you can easily purchase and store abroad. If your investment plans include international investment, you should also consider how changing your tax residence status may affect your potential tax liabilities, and whether becoming a resident or even a citizen of a tax-friendly country can help you protect your investments. 

For help with examining the tax implications of your foreign investments and your potential move to another tax jurisdiction, consider working with Nomad Capitalist.

Find a Favourable Tax Jurisdiction With Nomad Capitalist

Nomad Capitalist is a consulting company that specialises in global mobility and wealth protection. We have helped more than 1,500 clients develop and implement their financial or lifestyle strategy and:

• Secure a second residency or citizenship abroad
• Legally reduce their tax liabilities 
• Access banking services abroad
• Capitalise on investment opportunities in foreign countries

With our Action Plan service, we develop a step-by-step blueprint for your international goals. We take into account your current circumstances and desires, and create a guide tailored to your specific needs and timeline through a streamlined process: 

1. We ask you to fill out a form to help us determine whether we’re a good match
2. We schedule a 45-minute call to learn more about your situation and needs
3. Your case manager develops an Action Plan and presents it to you for approval
4. We implement the Plan over 12 months and manage the administrative parts
5. You continue receiving support from us even after the Plan is implemented

Nomad Capitalist can help you explore geographic diversification options and find the most tax-friendly jurisdictions for your investments. We can also help you obtain residency or citizenship in those jurisdictions, and advise you on the tax implications of changing your residence. To start the process of moving where you’re treated best, contact Nomad Capitalist now!