Oxstones Investment Club™By Michael Brush, From MSN Money,
Diamonds may be a girl’s best friend, as Marilyn Monroe sang in “Gentlemen Prefer Blondes.” But investors are warming up to them, too.
“People are telling us ‘We no longer believe in real estate, we don’t trust the stock market, and gold is leveling off, so we feel the one thing we can put our money into is diamonds,'” says Jill Burgum, director of fine jewelry at Heritage Auctions.
Many investors now go for large stones and the best quality, she says, and they’re paying a premium. A 9.26 carat emerald-cut, loose diamond recently sold for $902,500 at Heritage Auctions, which works out to $487,300 per gram. That’s 9,125 times the price of gold, worth about $53.40 per gram.
That was an extremely rare diamond, flawless and chemically pure. “There’s limited access to the best of the best,” says Burgum.
But if that’s too rich for you, rest assured that “bread and butter” sales at Heritage are diamonds under $10,000. A 1.89 carat round diamond recently sold for $8,750, or $23,150 a gram.
There’s risk in diamonds. Competitors are pushing gems like emeralds, rubies and sapphires, and they are catching on. And following a price-fixing scandal last decade, the diamond company De Beers is spending a lot less on advertising. But it’s still spending millions of dollars a year.
I’ve handled gold bars in the basement of the Fed here in New York City, where you can see hundreds of them piled up. Gold bars are impressive stacked that high, but ultimately pretty they’re boring unless you’re Ebenezer Scrooge. Most investors, in fact, own gold through a stock or a fund like SPDR Gold Shares (GLD).
In contrast, hand over precious metals and stones to a skilled craftsman working for the most prestigious jewelry houses in the early 1900s — like Cartier, Van Cleef & Arpels or Tiffany (TIF) — and you end up with a timeless work of art worth much more than gold.
Vintage jewelry is likely to not just hold its value but also to go up in price more than gold. Art deco designer jewelry from the early 1900s is a perennial favorite, says Burgum, of Heritage Auctions. “People are fighting over those pieces, and the prices are going higher and higher every year,” she says.
What’s the attraction? Look for yourself. The detailed Old World craftsmanship by skilled designers is simply stunning. “There’s something about designer pieces that just screams quality,” says Burgum.
It’s illegal to own moon rocks brought back on U.S. space missions. This, of course, just adds to the allure of the moon rocks you can buy, because they made it here other ways. It also helps explain why moon rock may well be a more profitable investment than gold over the long term.
How do these moon rocks get to earth? Long ago, asteroids hit the moon and knocked off pieces, which became meteorites. Now, lab tests can reveal the moon’s telltale chemical signature in meteorites, explains Jim Walker, an asteroid expert with Heritage Auctions.
At a Heritage auction last May, lunar meteorites went for $185 a gram to $3,400 a gram, compared with about $53.40 a gram for gold. Thus moon rock is worth 3.5 to 64 times more than gold. What explains the huge variation in moon rock prices? Chalk it up to the Costco effect: You get a better price when you buy in bulk. A 3.32 gram piece sold for $11,250, and a 1,779 gram hunk went for $330,000, says Walker.
If owning a moon rock that looks like something out of your barbecue grill seems uninspiring, consider the more aesthetically pleasing rocks that fell from the sky. Gibeon meteorites are nickel-iron beauties hidden for thousands of years in a meteorite field in Namibia where groundwater and time shaped them into stunningly gorgeous sculptures, says Walker, of Heritage Auctions.
At auction last October, these brought anywhere from 50 cents to $6.90 per gram for highly sculptured examples. Yes, that’s much less than gold by weight. But they could jump in value as this fairly new area of collectibles catches on. “I think you will see prices on meteorites go plenty higher in the next 10 years or so,” says Noah Fleisher, of Heritage Auctions. “It will be like the people that paid $1,800 for an Action No. 1 comic book in 1975, and now are sitting on a $100,000 comic book,” he predicts.
Only time will tell, of course. But meteorites with storied and well-documented historiesalready go for much more. A piece of the Ensisheim meteorite, named after the city in France near where it landed in 1492, recently went for $243 per gram, or about five times the value of gold, because of its exotic provenance and historical significance, says Walker. The meteor may have been taken as a sign by leaders of Austria to attack France.
If you’re such a gold bug that you can’t believe anything trumps the yellow metal as an investment, well, consider this. A page of animation art sold at Disneyland in the mid-1950s for $1.25 can now go for $25,000 or more. That’s a 1,999,900% price increase, compared with 4,643% for gold over the same time.
Of course, to get those kinds of incredible gains you had to be the first in, and it’s too late for that now.
Still, there’s a way to be “early” with animation art. Go with drawings from “The Simpsons” or “SpongeBob SquarePants.” They’re cheaper, at $500 to $5,000 per item, since they are newer. But they have a similar cache — and investment potential — to animation art of older characters like Snow White, Cinderella, Pinocchio, Peter Pan or Bugs Bunny. That is, they aren’t making any more of this stuff because of the shift to digital technology.
This guarantees limited supply of hand-drawn animation cels, points out Jim Lentz, animation specialist at Heritage Auctions. It doesn’t assure price appreciation, but it helps. “People are really embracing these wonderful pop culture icons that are hand-drawn and hand-painted, because everything now is click, click, boom,” says Lentz.
Handmade in France by expert artisans out of calf leather, crocodile, alligator or ostrich-skin, the Hermès Birkin handbag is perennially the most sought-after luxury designer bag in the world.
Birkin bags in crocodile can go for anywhere from $30,000 to $90,000, says Matthew Rubinger, director of luxury accessories at Heritage Auctions. Recent versions made from less-exotic materials can cost about $7,000 to $15,000.
These bags feature platinum and gold-plated metals. But it’s not the gold that gives them their value. It’s more about the quality and integrity of the Hermès brand and the classic design, which hasn’t changed since the bag came out in the 1980s. “They are seasonless, which helps them become collectible,” says Rubinger.
It also helps that supply is limited by Hermès, no doubt part of a marketing strategy. “You can’t just buy one in a boutique. You have to be big client and have a good relationship with Hermès,” says Rubinger. Big demand, limited supply. That’s the basis for a potentially great investment. And it doesn’t hurt that Hermès ups the price by around 10% a year.
If you’re thinking of investing in a Birkin bag, named after the actress Jane Birkin, be aware that rarer colors may appreciate more. Also consider Hermès Kelly bags, named after Grace Kelly in the 1950s. These are extremely popular, too, but they cost less, at about $5,000 to $8,000 for more recent versions.
If all that sounds a little too adventurous to you, let’s consider some more-traditional alternatives to gold.
Platinum is a bit like gold in that it’s popular for jewelry and it’s a place to hide from worries about government monetary policy gone wild. But several differences point to much bigger gains for platinum in 2013 — possibly a hike of as much as 25%.
The big one is that unlike gold, platinum comes mainly from South Africa, where several problems threaten supply, says Tom Winmill, who manages the Midas (MIDSX) fund. Besides rolling power shortages, the threat of miners’ strikes and heavy taxation, uncertainty about the political environment has foreign companies limiting investments in their mines. This reduces production, which could get whacked at any moment if any of the above problems worsen.
“Going long platinum is a way of going short South Africa, and there is a lot going on there that is of grave concern,” says Winmill. Another positive for platinum: Net global demand of 6.2 million ounces a year already exceeds supply by about 400,000 ounces, says Winmill. He thinks platinum, now at $1,630 an ounce, could hit $2,000 by the end of 2013. It will trade for an average price of about $1,825, he believes.
Another advantage over gold is that platinum has a source of almost-guaranteed demand. Clean-air standards make platinum a must-have metal for truck producers for diesel catalytic converters. They buy at just about any price. Rannestad, of CPM Group, thinks platinum won’t fall below $1,550 an ounce this year, in part because demand from jewelry makers picks up when prices drop. Forget the mining companies as a play here, because they are too risky, says Winmill. Instead, consider ETFS Physical Platinum Shares (PPLT
Like platinum, palladium is more widely used in industry than gold — mainly in catalytic converters for cars, but also in electronics and chemical production, says Rannestad, of CPM Group. Thus, if economic growth continues or picks up, which is my forecast, palladium demand — and prices — will as well. Sales of autos, where most palladium ends up, have been strong. But they’ll continue to rev up as consumer confidence returns, since the average age of vehicles on the road is more than 11 years.
Uncertainties on the supply side also support potentially big price gains in palladium this year, says Hicks, portfolio manager of the U.S. Global Investors Global Resources Fund. One big source of palladium is South Africa, where power shortages, strikes and political uncertainty threaten supply. The other is Russia, which has been putting less on the market. “It appears their stockpiles are dwindling,” says Hicks. “This is all setting up for a market that could be quite tight.”
He thinks palladium, which recently sold for $685 an ounce, could reach prior highs greater than $1,000 in the next year or two. Rannestad, at CPM Group, has a more modest projection of a possible high of $750 this year. Palladium bulls can buy palladium producer Stillwater Mining (SWC) and ETFS Physical Palladium Shares (PALL)
Rhodium
Rhodium is a silvery-white precious metal used mainly in catalytic converters. Most of it is produced in South Africa. Both of these factors explain why the metal, which has seen price declines for about two years, could see nice price appreciation this year.
Global auto production could expand 2.4% this year to 82.7 million vehicles, which would add to rhodium demand, says Rannestad. Meanwhile, strikes, power outages and political instability in South Africa could limit supply. Rannestad thinks further price declines from current levels of around $1,100 an ounce are unlikely, in part because demand already exceeds supply. She thinks the price could rise to $1,200 over the next several months.
Rhodium is tricky to invest in. You can buy rhodium bars from a metals dealer. Or you can trade the Physical Rhodium ETF (DBSHF
If you keep noticing stories about people stealing copper from churches, there’s a simple explanation. Lowly copper was one of the best-performing metals coming out of the financial meltdown, trading up to around $4.50 a pound in late 2010 from about $1.30 in early 2009. At these prices, stealing copper to sell for scrap is a way to make a few bucks.
A more conventional way to make money from copper is to just buy the iPath Dow Jones-UBS Copper Total Return Sub-Index (JJC) exchange-traded note.
Since 2010, copper has retreated to around $3.60 a pound, on fears about growth in China and other emerging markets, which are big consumers of copper for their infrastructure build-outs, as well as worries about a U.S. recession and problems in Europe. But growth in China and other emerging markets should be picking up again soon (see “The 7 big developments of 2013
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