We already know that the new consumer is savvy, not swayed by empty slogans. We also know that the consumer expects to know more about the products they buy. This makes price transparency in diamonds very important.
Last week we wrote the first in a series of articles to show how transparency helps consumers reach informed decisions. Transparency and education, we wrote, will go a great distance towards making informed decisions possible.
We pointed out that the introduction of lab-made goods in the consumer market appeared to introduce a product to compete with natural diamonds. However, with the exception of the beauty they both share, there is another aspect to natural diamonds that is not shared by lab-made and where they cannot compete: value of exchange. This value of exchange derives from natural diamonds’ rarity, as opposed to lab-made goods’ potential for endless production.
Natural diamonds are not only objects of beauty, purchased for romantic reasons. They have the potential to be an asset class for wealth preservation. Those interested in resale value should be able to track a diamond’s value over time because they will want to know more about a diamond’s economic performance.
We must show consumers who see a diamond as an item without utility that it can be much more than just an expense. Buying a diamond knowledgably empowers the consumer and transforms the purchasing of a diamond from an expense into an asset. When a consumer knows the characteristics of the diamond, he or she should be able to track its value easily according to reputable source data.
With such a tool in reach, consumers will be able to know the value of the diamond upon purchase, and later when they consider selling it – just as we can with many of our other assets.
It is our responsibility to bring new consumers closer to the concept of value of exchange in the context of natural diamonds. Creating transparency is one of the ways we have of doing so.
Transparency, in this case, includes showing consumers the components of value – which include the 4Cs of cut, color, clarity and carat – and extends into another important determinant of value, irregularities.
Looking beyond serving consumers well, regular access to transparent, detailed wholesale values of natural polished diamonds opens the gates to other wider-scale options, such as the potential for a spot market. A spot market would be the ultimate arena for diamonds as assets, traded on the basis of known values.
The case of irregularities
Irregularities are a closer and deeper look into the value of a diamond, a look beyond the 4Cs. Irregularities capture additional factors that impact the diamond’s value. This can include clarity issues – how free a diamond is from inclusions and blemishes, or internal and external features that negatively or positively affect a diamond's shine, beauty, and light refraction. Other examples of irregularities are the lab that issued the grading certification or fluorescence. I strongly suggest that you read about diamond clarity by following this link.
Inclusions are features such as small materials caught inside the diamond during its formation. A blemish could be a chip, a small nick on the surface of the diamond caused by an external force. All these together are termed irregularities.
Inclusions may cause multiple reflections in the pavilion facets of a diamond when viewed through the table, at the top of the diamond. Such reflectors lower the clarity grade of a diamond.
A common inclusion is crystals trapped inside a diamond. Typically, crystals can only be seen if the diamond is examined at 10X magnification. If the diamond has an irregular atomic structure, it can also have a clarity characteristic called graining. Graining appears like faint lines or streaks. Diamonds can also have internal breaks, which develop during or after formation. These breaks are called “feathers,” because of their feathery appearance.
Comments may impact value
If you have ever had the chance to examine a diamond grading report, you may have noticed at the bottom of the report a section called Comments. This section lists additional characteristics beyond the 4Cs that further define a diamond – and how to determine its value.
Comments are additional information provided by the grader to elaborate on an issue already mentioned elsewhere on the report or to describe characteristics that the lab wishes to highlight. Because a long list of features can result in the same clarity grade (especially a combination of different features), the comments section is very important.
Some of the comments are minor and do not impact the price of the diamond. At times, however, comments provide important information of the kind that has a noticeable impact on price. An example of such a comment could be internal graining, which means that thin white or brownish lines are visible inside the diamond.
If there are conclusions to be drawn from the above, first among them should be that even though two diamonds may share the same 4Cs characteristics, they could still be valued very differently.
For example, the value of a diamond is affected not only by the presence of an inclusion, but also by its precise color and location. A black inclusion near the table reduces the price of a diamond more radically then a white inclusion hidden at the bottom of a stone.
Irregularities and the impact on value
How much does a black inclusion close to the diamond’s table (top surface) impact value? At Mercury Diamond© we have spent the past few years collecting data on diamond transactions and their GIA grading reports, and we have been analyzing this date. We are bringing you the results as part of our continued effort to bring transparency to the market.
The basis for calculating the impact of irregularities on value, is by looking at the value of a perfect diamond that has no irregularities with excellent proportions and symmetry and no fluorescence – and treating its value as 100%. This is the starting point.
We then looked at the impact each single irregularity had on the value of the stone as traded in the wholesale market and found the difference in value. The following table lists some of the inclusions and their additional discounts based on what we know about the market.
A mineral deposit trapped inside a diamond. When the crystal is totally enclosed within the stone, it is called an included crystal. Crystals can be almost any size, colored or colorless, and can occur alone or in groups. Under overhead lighting, often appears black.
Depending on size, location and color, up to -12%
A long, thin inclusion that can be a crystal or a hollow tube filled with gas. Can appear white, bright or dark.
A very small mineral crystal trapped inside the diamond during growth that appears as a tiny speck at 10X magnification. Pinpoints are most often white, but they can occasionally be dark.
A cluster of small inclusions, typically pinpoints, that cannot be seen with the naked eye, that together create a cloud effect. Additional discount depends on size, color and location.
-8% to -30%
A flat ribbon of pinpoints, crystals or clouds resulting from crystal distortion during growth.
-10% to -12%
Thin brownish or whitish lines visible inside the diamond. Its appearance can take the form of lines, angles or curves. Caused by irregularities in crystal growth.
-15% to -25%
A small, concentrated area of crystal growth distortion. It can be white or dark and can occur alone or in groups.
A fracture from which very fine lines radiate. Usually white or transparent.
-8% to -10%
Minute feathers that extend from the girdle surface into the stone. A lightly bearded girdle has a few very fine feathers scattered around the diamond's perimeter. A heavily bearded girdle has so many feathers that they create a fuzzy gray fringe all around the stone.
-10% to -15%
A tiny area of impact accompanied by small root-like feathers visible at 10X magnification. When viewed through an opposing facet, a bruise appears cottony as it radiates into the diamond. A bruise is sometimes called a percussion mark and is caused by a hard blow.
-8% to -12%
An included crystal that extends to the surface after cutting and polishing. With magnification and proper lighting, the boundary between a knot and its host diamond is at times visible, as are drag lines on one side of a knot where minute fragments of diamond are unintentionally dragged across the surface by the polishing wheel.
A small nick on the surface of the diamond that typically has a rounded outline.
An opening in the surface of a diamond that affects the diamond's clarity grading. A type of inclusion that is typically distinguished from a chip by having drag lines on one side of the cavity where minute diamond particles are dragged across the diamond surface by the polishing wheel. Can also affect cut-grade assessment if located on culet, crown or pavilion of a diamond.
The rough diamond's original surface dips below the polished diamond's surface. Naturals are considered in the diamond’s symmetry evaluation. Might have growth markings that look like triangles (trigons) or parallel grooves.
A tiny tunnel produced by a laser beam. The tunnel extends from the surface to a dark included crystal. After drilling, a technician might introduce acid into the surface-reaching drill-hole or feather to dissolve or bleach the inclusion and make it less visible. The GIA grades laser-drilled diamonds because the holes are permanent features and notes the drilling under comments. Laser drill-holes are an enhancement, and the diamond considered to be treated.
-45% to 60%
Laser drill holes and surface-reaching feathers are sometimes filled with a molten glass substance in a treatment called fracture filling. The filler makes the characteristic less apparent. It can be difficult to detect, but the treatment leaves a telltale sign called the flash effect. Laser drill-holes are an enhancement, and the diamond is considered to be treated.
-45% to -60%
Discounts are calculated from the Mercury Diamonds© Index
Source: GIA, Mercury Crystal Clear™
The following is a list of some of the blemishes and their respective impacts on value.
A series of minute nicks along a facet junction. It gives the junction a white or fuzzy appearance. Abrasions usually occur when diamonds rub against each other.
A tiny cavity that usually looks like a tiny white dot. Pits usually result when pinpoint inclusions are pulled from the diamond during the polishing process.
Minor surface chips caused by abrasion due to long and hard wear. Most nicks occur along the girdle, but may also appear along the facet junctions or elsewhere. A nick can weaken the diamond in such a way that a hard blow may extend additional fractures from the base of the cavity.
Twin, Knot or Surface Grain Lines
Lines that are caused by twinning or by large inclusions that are oriented differently from the main crystal. They stand out as visible lines at the surface. They are distinguished from polishing marks because they run across facet junctions.
"Surface graining is not shown" is a common comment on GIA grading reports. A diamond that is graded Internally Flawless can have internal graining and as long as it is transparent it will not affect the clarity grade unless they are present in large masses. These surface grain lines are seldom visible to the eye and are typically of very minor importance even though the mention in the comments section draws a lot of attention.
A small part of the rough diamond's surface that was left on the polished diamond, often on or near the girdle. Sometimes looks like trigons.
-5% to -8%
Scratches from wear or contact with other diamonds.
Prominent grooves left from poorly polished diamonds that can cause diffraction and loss of brilliancy.
An additional facet made without regard for symmetry and is not part of the standard cutting style. They are commonly made to polish out a minor inclusion such as a natural.
One or two tiny, inconspicuously placed, extra facets will not prevent a diamond from getting an excellent symmetry grading – unless easy to see under 10X magnification.
A girdle that has an irregular, granular, pitted girdle surface. Usually accompanied by bearding or feathering. The term rough girdle describes a girdle that appears waxy. It also describes a girdle that is badly pitted and even chipped.
Marks caused by excessive heat when a diamond is polished too rapidly. The surface of the diamond can also be burnt by exposure to a torch in the setting process. Burn marks can usually be polished out.
Source: GIA and Mercury Crystal Clear™
Measuring it in practice
Now let’s look at the different values from a practical perspective. Mercury Diamond© has developed tools that show what diamond can be purchased for a predefined budget, the historical price behavior of such diamonds and a recommended purchase price.
These tools are different from the benchmark tools currently used in the diamond industry. Those currently in use are based on asking prices as opposed to Mercury Diamond© real transaction prices. Mercury Diamond© tools also include the option to recommend a price for a diamond by taking any possible irregularity into consideration.
These tools add transparency to the market and constitute an important step towards a spot market in which any natural diamond could be traded anytime, anywhere just as other commodities such as gold are traded without an arbitrage.
Such a market, which would also be open to the jewelry manufacturing industry, has the potential to grow beyond the size of today’s market by welcoming new buyers.
Calculating the prices of diamonds with irregularities demonstrates how seemingly identical diamonds, with the same 4Cs, in fact differ in value. From a purchasing standpoint, this means that a buyer can choose to maximize purchasing power by putting an emphasis on certain characteristics while compromising on others.
In the following table we list three different options for a natural diamond with a wholesale value of $20,000. In each option, shape, color and clarity are the same. However, the irregularities are different, and therefore a different size diamond can be chosen – all while retaining the same budget.
These examples are based on wholesale transaction prices recorded in October 2015 collected by Mercury Diamond©, alongside market research by Mercury Diamond©.
Finally, what follows is additional information on our approach, which we propose to the market. I believe that this is a ground-breaking approach to the market. Please let me know what you think of it.
We have entered a new era. The X10 loupe used to identify the 4Cs of a diamond has given way to microscopes. Microscopes reveal many more details and Mercury Diamond© incorporates all these hundreds of additional details in its list of irregularities. We have allocated discounts and/or premiums to many hundreds of irregularities. We have also developed formulas that allow us to determine and recommend an accurate price for a diamond based on transaction prices and a variety of irregularities which impact this price.
Consumer equipped with this kind of knowledge will have newfound confidence when buying diamonds. They will now have information on price when entering a purchase, and be able to track the value of the asset while holding it. Consumers will also be empowered when exiting, as they will be able to sell the diamond with knowledge. This approach will also raise manufacturers’ confidence.
Diamonds need to and can rise to the next level to provide this type of information.
The views expressed here are solely those of the author in his private capacity. None of the information made available here shall constitute in any manner an offer or invitation or promotion to buy or to sell diamonds. No one should act upon any opinion or information in this website (including with respect to diamonds values) without consulting a professional qualified adviser.
Diamond industrialist Ehud Arye Laniado is a man passionate about diamonds. From his early 20s in Africa and later in Belgium honing his expertise in forecasting the value of polished diamonds by examining rough diamonds by hand, till today four decades later, as chairman of his international diamond businesses spanning mining, exploration, rough and polished diamond valuation, trading, manufacturing, retail and consultancy services, Laniado has mastered both the miniscule details of evaluating and pricing individual rough diamonds and the entire structure of the diamond industry. Today, his global operations are at the forefront of the industry, recognised in diamond capitals from Mumbai to Tel Aviv and Hong Kong to New York.
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