Since 1971, the year Nixon decoupled the dollar from gold, fiat currencies have been used as the accepted store of wealth and medium of exchange. And globally today’s currencies are backed by nothing except confidence.
Now, as governments and central banks pursue questionable policies and politicians reach further into the lives of their citizens, this confidence is being eroded. Central banks are printing money to buy debt. Currency manipulations, government misrepresentations, reactive equity markets, historic income disparity, and surprise election results have combined to raise alarms.
Change Is Certain
India’s recent clampdown on cash banknotes demonstrates that countries will aggressively regulate currency, eliminate cash, and pass laws that impact savings when the new political elite establishes new priorities. Yet these new politics, laws, taxes, and manipulations have not reduced ballooning deficits and debt-to-GDP ratios are still growing.
Government attempts to control wealth and money will grow. Google quickly displays 8,500,000 search results for “the end of money.” The future of savings and wealth is uncertain and has clearly supported inventions of electronic “money” like Bitcoin.
Gloomy news hinting at systemic collapse motivates both savers and investors to place more resources in alternative stores of value, as the safety of the principal becomes the greater concern.
The question quickly becomes: “Exactly where can one turn to store savings and wealth in an uncertain environment?” and prompts many questions like: What does control of Hong Kong by China mean for assets and capital? Will kingdoms like Dubai remain safe? How will populist leaders upset traditional systems?
Diversification is Key
The move of wealth and savings from its traditional medium of exchange to a safer store of value includes time-honored, hard, and alternative assets such as precious metals, real estate, and – for those with speculative money to put at risk -- high-end collectibles.
This shift makes sense as alternative/tangible assets have been reasonably secure against traditional risks, which throughout history have protected against inflation, interest rates, currency, and other global risks.
Today, individuals who want the tangible safety of hard and alternative assets need to develop expertise in markets, banking, transportation, storage, duties, and taxes, then also figure out whom to trust. And that’s just to keep what they already have.
Investors who also care about the rate of return need to consider fiscal and political developments in multiple countries and understand the broader effects of deflation, central banks shifting policies, competing interest rates, currency exchange, geopolitical risk, and complex financial markets.
In the traditional global system, precious metals, real estate, and high-end collectibles such as art are the leading alternatives, both in the individual’s safety deposit box and portfolio or the investor’s allocation model. And with the financialization of these assets over the last 20 years coupled with the explosion of global liquidity, values have reliably risen as new demand surged for many portfolios.
For professionally and actively managed investments, the price volatility of precious metals, risk associated with real estate performance, and the long-term view needed for high-end collectibles are generally manageable.
Yet professionals and individuals alike hold these assets despite some limitations like the lack of portability, the need for special storage or management, and increasing government reporting and intrusion.
Further, in extreme situations, governments have been known to do strange things like confiscate gold, as happened in the United States under President Roosevelt or India indelibly marking the hands of people exchanging banned 500 and 1,000 rupee banknotes to prevent “repeat exchangers.” (The likelihood of a gold confiscation seems very low since gold is no longer required to back the currency as it was in FDR’s time.)
Real estate may be lost to unpaid mortgages, taxes, and eminent domain or nationalized like in Cuba and Venezuela. And high-end collectibles often need extraordinary care to retain their value – and expert knowledge to ensure you don’t get ripped off.
New politics, new administrations and regimes, intrusion, and shifting priorities mean that governments and therefore markets will act in unexpected and unpredictable ways. There is no guarantee that under-capitalized banks, over-levered institutions, or places like Panama will survive the next endogenous or exogenous event or that any specific store of wealth or savings remain.
Portability Is One Aspect of Diversification
Smart portfolio managers diversify to mitigate asset correlations and risk. This diversification includes investment in different asset classes as well as geographic diversity where wealth and savings are invested in different places globally. There is no possibility of being too diversified in any asset class or location when circumstances can cause property to be confiscated, destroyed, nationalized, or otherwise lose value.
Diamonds are a portable, alternative store of savings and wealth that are being increasingly utilized for diversification. And in a new and uncertain world, where surprises will continue to catch us off guard, portability should be understood as an important aspect of true diversification.
The ability to easily move savings and wealth is not a feature of real estate or most collectibles but is for diamonds. They are arguably the densest and most portable form of savings and wealth in existence. Real estate is fixed, US$1 million worth of gold weighs about 10 kilos, as much as a large car tire, but a handful of collection-quality diamonds can be worth many millions and fit in a pocket.
In addition to adding diversification of portability, over the longer term, diamonds demonstrate lower price volatility, overall price growth, and a lack of price correlation with more traditional alternative assets.
A recent report by Barclays found that, in the current low-interest rate environment, investors’ interest in diamonds continues to grow.
Illustrating a classical supply/demand scenario, Bain & Company continues to forecast that demand for diamonds will outstrip supply by 2020 and the market for investment diamonds will play an increasingly influential role in all diamond prices. And when emerging economies accelerate growth; diamond usage will grow as well.
Add diamond financialization by Russian mining giant Alrosa, South African giant De Beers, a diamond exchange in Singapore, and future exchanges in Dubai, London, and China and the use of diamonds as a growing financial store of savings and wealth is obvious.
Problems of the Opaque and Illiquid Diamond Market Solved
The factors preventing this important use of diamonds have been progressively addressed over the last 20 years. The De Beers monopoly, industry pricing opacity, the lack of global diamond standards, fungibility, outright fraud, and liquidity problems have been solved, many recently by the inventions of Secured Worldwide with VULT.
Utilizing, patented, and proprietary materials and an open and transparent web-based portal VULT allows anyone with internet access to determine the last traded or listed price for any model to be discovered instantly and globally. With embedded technology that permits easy authentication, VULT delivers a fully warrantied, understandable, portable, and secure diamond asset that can be used by counterparties independently.
Because VULT does not compete in the existing diamond jewelry market, it bypasses persistent industry limitations and retail margins, creating a consumer and investor-centric asset. With VULT owners have access to cash in almost any currency almost anywhere in the world subject to Know Your Customer (KYC) and Anti-Money-Laundering (AML) regulations. VULT completes the transformation of investment-grade diamonds into a new portable asset for storing savings and wealth.
Responsibly-sourced, natural, GIA-graded, conflict-free diamonds are used in full compliance with the Kimberley Process and the System of Warranties of the World Diamond Council. VULT is American-designed, engineered, and manufactured to exacting standards. VULT makes a completely original legacy gift with exceptional value. It is fully warrantied, physically secure, easily authenticated, and not regulated or tracked.
VULT is available from Money Metals Exchange in an understandable range of denominations at issue from $10,000 to $250,000 and built with higher diamond standards than any other financialized asset. It is a truly unique product that combines the best qualities of alternative assets and diamonds with transparency and simplicity.
