We haven't been shy in voicing our opinion that investing in gold at this point is a bad idea for a host of reasons - see Worshipping The Golden Calf . In short, to get the same return on investment as those people holding gold from it's last spike in the 80's (who only showed a profit on that gold in 2006), gold would have to double in price again. The people who really made money bought from 1996 through 2005 when gold was going for about $400.00 an ounce, a price it will return to when the current panic is over. The rule is buy low, sell high - not buy high and hope for higher.

For the part of the population who buys gold out of fear that the economy will collapse and civilization will end, well - think about it. Should the worst happen, the things of true value will not be a shiny, soft, yellow metal - it will be food, clothing, weapons and skills. No one is going to care about your stash of double eagles or Kruggerands.

Now that we've gotten all the gold traders upset again, we see a new and worse scam - investing in diamonds. We keep our ear to the ground on Talk Radio. It seems more and more hosts in conservative media are stepping away from gold, and hawking diamonds instead. We can only guess that they felt their reputations being endangered by shilling for a commodity overpriced out of fear, and have taken up an alternative. We wish that they would do the homework that they urge us to do.

Gold at least is fairly rare. Diamonds are not. The rarest of gemstones are natural emeralds, followed by rubies and sapphires. We say "natural" because most of the stones sold commercially in America are treated to enhance color. They are treated for color because the true brilliant natural stones are extremely rare. Many of the so-called "semi-precious" gemstones are rarer than diamonds. Tanzanite and black opals come to mind.

Diamonds are pretty in a bland sort of way. Their value however is not the result of rarity. They have benefitted from the supply chain being controlled by a cartel that would make OPEC blush. Initially it was DeBeers running the show, and limiting the supply available to market. Africa used to be the primary source of diamonds for the world, and DeBeers owned all of the mining operations on the continent. Over the past 20 years large caches of diamonds have been discovered in Russia, and the Russians have seen fit to cooperate in keeping prices inflated.

Recently Canada has been found to be diamond rich. In late October 2011, the United Nations lifted the ban on "blood" or "conflict" diamonds that were the focus of so much attention a few years back. It seems that either the human rights abuses have improved in Africa, or enough cash has passed though the correct hands at the U.N.

The commercials for the diamond brokers claim that no new mines are planned. That would be in the cartel countries. There are no new mines planned because there is an overabundance of supply that is slowly being introduced to market in measured doses much as a drip IV slowly introduces medicine in your system. Too much at once would crash the market. We do not see how the cartel can maintain it's grip with these new supplies of diamonds available.

Diamonds also have the best ad men in the world pushing them as the ultimate expression of love in a society that too often equates love with commercial transactions. Traditionally, the gemstone of expressing love has been the ruby for the wealthy, and the garnet for the not so wealthy. Oh, and that traditional gold wedding band. Madison Avenue and DeBeers have elevated the durability of the diamond to symbolize the hope that love would be equally durable - in a land where the divorce rate hovers around 50 percent.

The diamonds being sold for investment are claimed to be among the top half percent of diamonds in quality. Seems like a good selling point until it is factored in that we are talking the supply released to market. The numbers do not include stones held in reserve and not available to market.

Also not included in that equation is the subjective nature in assigning a dollar value to a diamond. An ounce of gold is an ounce of gold, and priced accordingly. A diamond is valued on size, clarity, color and to a lesser degree cut. A dozen gemologists will quote twelve different values for the same stone.

Promises of future price spikes because the Chinese are buying them up (because gold is overinflated) will be met by the standard laws of economics. As OPEC keeps the price of oil controlled by adjusting supply, the current cartel will do the same. That is, until the wild card new supplies start coming to market.

Common sense Dictates

By any math and any measure, the price of diamonds is already overinflated and artificial. Our fear is being marketed to, and some are succumbing to it. Having our savings and retirements nibbled at by inflation and eaten outright by stock market swings is not building confidence. Neither is the stagnant unemployment situation or the uncertainty over the economy in general. It is understandable that people want to protect their savings.

We are not saying that there is no money to be made in these commodities, but it is a casino, and every gamble favors the house. The only people who win 100% of the time are the brokers who make money on every transaction. There is nothing inherently wrong in that - as the saying goes, let the buyer beware.

We would hope that our readers would educate themselves before dipping a toe in or diving headfirst. There is no easy money. There are no guarantees. As an investment, we see diamonds as an even worse idea than gold. Diamond pricing is both manipulated and subjective. If pending Armageddon is your reason for buying, the shiny little stones will be pretty useless. You would have done better by investing in things that would keep you alive and sustained.

More than likely the economy will come around again (we expect starting in January of 2013 as the moving vans load up at the White House). When that happens, gold and diamonds will morph from investment vehicles back to what they are intended to be - jewelry. So says Common Sense.

RLB