I’ve been discussing the need for transparency in the diamond industry here for quite some time. I’ve written about the importance of letting people know what they are being offered by explaining to them in detail how the value of natural polished diamonds is determined.
This included a thorough discussion about the rarity of natural diamonds; an explanation of “value of exchange” and how it applies to natural diamonds; a straightforward overview of lab-made goods and the role they can play as gems for jewelry without having the long-term value of exchange and more. All this falls within my personal philosophy and vision for the diamond industry.
I have long held that basing our multimillion-dollar decision-making on benchmark price lists is not good enough. Decision-making cannot only be about knowing at what price to sell – it must also mean knowing at what price to buy! With access to accurate transaction prices, we can calculate what our rough diamond costs should be.
It is often claimed that the 4Cs are complicated. True, there are several aspects to diamonds that make pricing difficult to understand for the consumer. Our goal is to make it simpler.
The road to transparency
In the past few weeks, the drive toward transparency shifted gears with my announcement that Mercury Diamond™ had been collecting and analyzing market transaction prices as part of Mercury Crystal Clear™. We used this data to reveal key pieces of information that can assist in informed decision-making diamond purchases.
We explained that consumers don’t have to view natural diamonds as items without utility – rather, they should be seen as much more than a mere expense.
We demonstrated how the wholesale value of 1 carat rounds, H color in FL, VS and SI clarities, K color in FL, VS and SI clarities, and a D color Flawless diamond changed over time according to market transaction prices.
To underscore their volatility, we compared them to common economic indicators: CPI, S&P 500 and commodities (S&P GSCI) during a six-year period, from May 2009 to October of this year.
Taking transparency yet another step further, we presented a price grid based on our analysis of wholesale prices of 1-carat rounds by color and clarity. This is one of our new tools, aimed primarily at buyers who are not diamond traders. It is based on market trading prices from October and does not reflect any premiums or discounts that retailers may place on their sales. This tool grants the market more transparency, in line with my vision.
We took a budget of $15,000 and showed the various natural diamonds in a variety of shapes, colors and clarities, ranging in size from 1 carat to nearly 3 carats that can be purchased for this budget. This is another important tool for considering a purchase, aiding consumers who simply do not have the same knowledge as industry insiders.
We thoroughly discussed irregularities and how they impact the value of polished diamonds. We then provided a long list of irregularities and their resulting discount or premiums effect. All information is based on hard data collected routinely in the market. No guessing, no suppositions, no predicted asking prices.
Transaction-based diamond price list
All of which leads us to a crucial tool: the Mercury Diamond© monthly natural diamond polished price list. As said, this tool is based on market transaction prices provided by firms in the industry that believe, like I do, that high-quality transparent information must be made accessible for the future of the industry.
You may have heard that last week Sotheby’s auctioned the Blue Moon, a 12.03-carat fancy vivid blue diamond with flawless clarity, for a record-setting $48 million. The gentleman that purchased the diamond knew exactly what he was buying. He saw the stone, studied it, saw the GIA grading report, received a Monograph from GIA that detailed the diamond’s rarity and the history of such diamonds. Only after accessing all this information did he make an informed decision.
That kind of decision-making is not limited to buyers of exceptional diamonds such as the Blue Moon. The same informed decision can and should be exercised when buying a far more commonplace 2-carat round diamond – because the buyer must know what he or she is buying! The 4Cs provide a lot of information, but not enough. The irregularities must also be known and understood.
The list is based on market transaction prices, and the value of a specific diamond determined by irregularities – either by applying the relevant discount or by adding a premium. The list is an important step forward toward the development of a spot market, in which any natural diamond could be traded anytime, anywhere just as other commodities like gold are traded without arbitrage. Practically any gem-quality natural diamond weighing 1-30 carats, can be considered for wealth preservation purposes. Such stones offer a balance between liquidity and rarity – they can be bought and sold with relative ease while benefiting from their rareness.
Last week we presented a small table with a few variations on the value of diamonds with three different 4C combinations. Now I’ll show it on a whole portfolio of diamonds, this time with a full list of their irregularities, what their value would have been without irregularities, and how they impacted their value in the market today.
The Mercury Diamond Price List (the "List") is the exclusive property of Mercury Diamond ("Mercury"). No portion of the List may be distributed, copied or reproduced by any means, or in any form, without obtaining Mercury’s prior written permission. Mercury does not guarantee that the data and information provided in the List is accurate, complete, current, real-time or appropriate for your needs and accordingly Mercury assumes no liability in connection with the List. Actual transaction prices may be either higher or lower than the prices provided in the List. The List cannot substitute for physical examination of specific diamond(s) by an expert. Investing or trading in diamonds is a high risk activity and you should therefore become aware of the risks beforehand and consult with an independent and suitably licensed advisor. © 2015 Mercury Diamond
Because each diamond has its own volatility, we are adding the following graph, which shows the value volatility of the above diamonds since May 2009. We have included a few important economic indicators: a commodity index (S&P GSCI), Case-Shiller Home Price Index, gold and S&P 500.
Following a diamond’s track record of value over time, and comparing it to other diamonds and other economic indicators, provides a framework for the long-term valuation of a diamond, its value-of-exchange. A person who holds such a diamond will better appreciate the asset in hand and better understand its resale value.
This level of transparency helps consumers reach informed decisions. Transparency and education will go a great distance toward making the vision of a sophisticated, enduring and well regarded diamond industry a reality. Such a market has the potential to grow beyond the size of today’s market by bringing in additional buyers. It can serve as a basis for a spot market and other financial facilities that have the potential to serve the market in general and consumers in particular.
For the midstream, this information helps clarify what price of rough they can afford and enables them to serve as the gatekeepers of rough costs, especially today when boxes are delivered unsealed and each rough diamond must be individually examined. Mining companies can also benefit from such detailed data by understanding where they should moderate pricing to prevent manufacturers from slipping into a loss.
That is the vision. That is where I want to go. And these are just some of the tools that will take us there.
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.