Empowering Consumers to Unleash the Real Value of Diamonds

What do people who use laptops, cell phones or read newspapers online have in common? Not long ago, nobody could have imagined them using these tools, as they simply did not exist.

A trait unique to human beings is the ability to invent things that do not exist. This unique ability to imagine has led people to evolve and develop new ways of thinking. It has led us to change perceptions and beliefs on a grand scale, and what has followed is evolution and social progress.

The diamond industry is considered a very traditional industry, shrouded in secrecy, at least in the eyes of the end consumer. For some time now, I have been writing that polished diamond prices and volume of trade, and by extension price and volume of rough diamonds, are and always should be determined by the end consumer.

For some time I have called on the diamond industry to change its traditional approach towards consumers, and in doing so transform the perceptions and behavior of the final consumer, in ways that will ultimately lead to increased polished diamond purchases. My proposed new approach towards current and future consumers is one based on openness and transparency. I believe this new approach will in turn generate a change in the perception of diamond jewelry from an opaque product to a fully disclosed product. In my opinion, it is transparency that will transform end consumers’ behavior and bolster their confidence.

Recently, I have presented several tools developed by consultancy Mercury Diamond^© that chiefly present detailed information on and beyond the traditional 4Cs.

We have demonstrated that these tools are designed principally to change perceptions – for instance, by presenting polished diamond transaction prices versus the traditional benchmark lists, which are based on asking prices. We further discussed the impact of irregularities on the prices of polished diamonds.

I have long stressed that diamonds have two major features: beauty and rarity, which are expressed in value-of-exchange. These features are important to highlight and foster in the minds of the public.

In light of the advent of laboratory grown goods I wrote that we must continually emphasize natural diamonds’ value-of-exchange, a feature not shared by laboratory grown goods. Given this key difference, I expect the cost of lab-grown diamonds to come down as the technology involved in producing them continues to develop.

I emphasized the vision of the ultimate goal being to create a spot market where anybody can buy polished diamonds from anywhere in the world without arbitrage – meaning a single diamond or several diamonds with the same total or equal value.

Immediately, the question arises: how can this be accomplished? How can you compare several small diamonds to a single larger diamond? After all, diamonds are not like $100 bills that can be easily substituted with two $50 notes or 100 $1 notes – all of which have the same total value. How can you create this with diamonds? Two half-carat diamonds do not equal the value of a one-carat diamond. If we cut a one-carat diamond in two or four, we immediately devalue the whole diamond – the value of a one-carat diamond exceeds the value of all its parts.

This is of course a matter of changing the public’s perception: another step towards highlighting the value of a diamond as a potential tool for capital preservation or exchange. How can we change the public perception that a diamond may be split into equal parts with different clarity, color and cut, while increasing transparency and consumer confidence, which will ultimately increase polished diamond purchases?

Under my guidance, we at Mercury have developed a tool to help end consumers to exchange diamonds. Some of them own small diamonds, others big ones. If they want to exchange their diamonds, this tool will help them compare apple to apple and like for like. This tool can move the public one step closer to understanding the relative positioning of smaller diamonds to a larger one (or vice versa) of equal value, or different shape diamonds with different weights, or other color/clarity/weight and shape combinations that result in the same value.

How does this tool work?

With a list of transaction prices, and knowledge of the premiums and discounts for all irregularities at our disposal, then we can proceed to assemble a complete matrix of interchangeable relations among all tradeoffs of various diamonds.

The tool developed by Mercury Diamond^© instantly translates the value of any diamond one could buy, for any size, shape and clarity, to an equal value diamond or diamonds.

Using the tool, the Mercury Exchange Converter shown below, if you check the value of a diamond with a known weight, shape, color and clarity, you will find that it has the equivalent value of other or several diamonds.

The following are examples of three diamonds with several alternatives that have the same wholesale transaction value. All values are based on November 2015 prices:

Now, let’s apply this to a real life scenario. Imagine a consumer who owns a ring set with three round diamonds. The center stone is a 0.70-carat, H color, VS1 clarity diamond, and the two side stones are 0.40 carats, G color VS2 clarity.

The total value of the three stones according to Mercury Diamond’s November 2015 transaction price list, and assuming they are Triple X make with no fluorescence, is $3,310, as shown above. Let’s say that instead of these three diamonds, this consumer wants a single one-carat diamond of the same value – that is his budget. Armed with the above information on value, our consumer would soon discover these diamonds that have the same value:

Our consumer can also opt for an upgrade, if he is willing to augment his initial budget out of his own pocket. In this case, let’s say he has an additional $2,500 for a total budget of $5,810. With this total, the consumer has a budget suitable for many different diamonds, including a 1.01 H color, VS1 clarity round diamond.

We can go on and on with examples because the number of combinations is countless. The beauty is that despite the countless possibilities, consumers can tailor the options to their specific tastes – a certain shape, color and size, for example, and clearly find the diamond to suit the budget.

This tool allows us to overcome one of the obstacles in the way of a polished diamond spot market and the problematic public perception that a diamond cannot be broken into different parts of the same value. The tool’s purpose is to change this perception and consumer behavior, so that a person in Hong Kong who wants to exchange a one-carat or five-carat diamond in his possession with several smaller stones can do so, or to empower him with the knowledge of how much he needs to add in order to exchange several small diamonds for a single larger one.

Highlighting the value-of-exchange of diamonds to the entire world is of great importance, and has massive potential. After a hundred years of diamond sales, consumers have accumulated an enormous inventory of polished diamonds, either purchased directly, received as gifts or inherited as heirlooms. I estimate the total value of polished diamonds held by the public to be over one trillion dollars.

Consumers around the world must start to perceive their diamonds in a different way. They need to understand that they hold an asset in their hands with tradable value, a rare item with a value-of-exchange. If they understand how to correlate the value of their gems to that of other diamonds with the same weight, color and shape, then the new conception of the monetary value of diamonds will hopefully lead to more transactions. Diamonds will not only flow to the general public but also back from it, increasing demand for fresh diamonds.

To create such comprehensive changes in perception, we must earn the confidence of a very broad audience that will believe in the idea of diamonds from an entirely different perspective. We must increase transparency as much as possible. The consumer who purchases a polished diamond for a significant amount of money must know the precise value of the asset they have in hand by having access to real transaction prices and knowledge of all the associated irregularities and how they impact value beyond the 4Cs.

Such a mass audience will stimulate faith in the product, which can be exchanged all over the world – including small stones being exchanged for larger diamonds with comparable value and vice versa. We will then see a new form of behavior in the purchasing of polished diamonds.

In the immortal words of John Lennon: imagine, it's easy if you try. As we embark on the new year, allow me to finish with the following:

“You may say I'm a dreamer

But I'm not the only one

I hope someday you'll join us

And the world will be as one.”

The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified adviser.