Home Alternative Investments Investing during inflation – can this alternative option save investors?

Investing during inflation – can this alternative option save investors?

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The UK’s inflation rate has hit a 40-year high of 9%, which not only affects people’s real savings, investing and purchasing power, but it also leads to higher interest rates on new bonds. And with no clear end in sight, investors need to take a hard look at their current investment portfolios to ensure they are as future proof as possible to weather this financial storm. Thomas Schröck writes

While inflation is undoubtedly a negative thing, particularly for investing, it is by no means the end all be all. Investors can still strategically manage their investments and find ways to mitigate their exposure by investing in alternative assets, and if done well they can even make lucrative returns despite being in a tricky financial climate.

For many investors, the use of alternative assets such as gold, wine, and real estate has been a way to hedge against inflation. These are often referred to as inflation-proof investments, and they have proven to deliver higher returns during times of crisis.

For instance, between December 2020 and December 2021, UK inflation increased by 5.5%, up from 5.4% in the previous year. Meanwhile, the prices of wine, art, and ethereum all rose by more than 5.5%, meaning that any investments in these categories yielded positive returns. Fine wine closed the year at an all time high at 19.08%, while art rose by 130% and ethereum a whopping 425%. So it’s no wonder why these forms of investments are used by savvy investors during times of crisis.

Despite the popularity of these types of investments, there is also a less talked about alternative asset that’s been rising in popularity: coloured gemstones.

Gemstones are the world’s oldest forms of investment assets, and have been used over 5000 years as a safe investment option offering fruitful returns over time. Despite this, many people are unaware of these alternative investment heroes and their lucrative benefits. If we compare gemstones to gold – which is one of the more well-known investment options – a kilogramme of gold is worth around £50,000, however a kilogramme of rubies is worth around £150,000,000, making the value concentration 3000 times higher.

Rubies, sapphires, and emeralds, which have gained in value by 5-8 percent every year since 1995, are at the top of the gemstone market in terms of value and growth potential.

Their increasing trend is continuing. When re-certifying our own gemstones through Gemological Lab Austria (GLA), one ruby’s report was valued almost 19% higher in November 2021 (see Fig 1) than it was in September of the same year.

Similarly, after re-certification in 2021, a selected sample of sapphires had an average annual gain of 15,7 percent, with a 6.1 carat Sri Lankan Sapphire at the high end of the spectrum seeing an astonishing 194,1 percent increase.

Much of the rise in popularity of coloured gemstones can be attributed to increased consumer awareness – primarily through the internet, social media, and marketing – as well as recent developments that have boosted consumer confidence, such as widespread certification, increased industry transparency, and gemmological analysis.

As a result of the Covid epidemic and the ensuing economic uncertainty, more people are looking for ways to make sensible financial decisions that will enhance their portfolio and provide more attractive long-term returns. During this period, cryptocurrency has become one of the more popular options for financially ambitious investors, but it is a highly volatile market with a high level of risk.

However, the allure and thrill of investing in this field is wearing off; Bitcoin, for example, has dropped half of its value since setting a record high in November 2021.

Taking the rising popularity of coloured gemstones in recent decades and combining it with more financially interested and risk-averse investors entering the market, we can only anticipate these valuable gems to rise in value even more over time and become a major alternative investment option. There’s a reason they’re called precious.

Thomas Schröck is the CEO and founder of The Natural Gem

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