In a recent article we discussed price correlation – and the lack thereof – between various investment channels and diamonds. In it, we looked at diamonds in general – from very small to very large, in a full range of colors and clarities. To date, there is no way to invest in a wide group of diamonds in the same way as investing in biotech firms or a NASDAQ tracking fund. An investor is more likely to invest in a very narrow collection of diamonds or just a single diamond and, therefore, it is worth looking at the differences in performance of specific diamond categories.
Recently, polished diamond prices have been subdued, as we reported. Prices of the most popular polished diamonds were largely unchanged once again in December and, overall, polished diamond prices remained flat for the fourth consecutive month, according to the Mercury Diamond Global Tracker™ (MDGT™).The index has posted a series of very small declines since April, cumulatively totaling 2.4% during the period. Polished diamond prices peaked in August 2011, declined and rose again in May 2014, and have shown a steady decline since July 2014. In the 42-month period of declining polished diamond prices, the MDGT™ index fell 19.5%.
When we look deeper into prices and examine individual categories of size, shape, color and clarity, different price patterns may emerge. For example, will a 1-carat round diamond, D color and IF clarity exhibit the same price fluctuations as a 1-carat round diamond, G color VS1 clarity? How do the two compare to 3-carat, round L, SI2? Not surprisingly, they exhibit some similarities, but generally speaking show very different trends. All rose until mid-2011 as did most all diamond prices, but then took different paths. Following a sharp decline in late 2011, the 3-carat round L/SI2 rose, and after a few bounces, leaped to a record price in mid-2014. The price of this item rose so high that it beat the 2011 price level, something very few diamonds have done. It then suffered from a price decline like most diamonds, however in recent months the price appears to be rebounding – bucking the trend of most other diamonds.
The one-carat goods in this comparison behaved very differently. The G, VS1 closely tracked the overall MDGT index with few exceptions. The D, FL, however, has been declining in price since mid-2014, falling far below the index. Between its peak price in August 2011 to date, this diamond lost 54% of its price. By comparison, MDGT declined only 19% during the same period.
The three diamonds in the above comparison are very different, so that could possibly explain some of the variation. Let us now examine diamonds that are similar in a way, for example D color, FL clarity diamonds. Here we are looking at 1-carat round, 3-carat round and 5-carat pear. It shows us that even if diamonds have the top color and clarity, they may still fluctuate in price in different ways. The 3-carat diamond hit a very high peak in August 2011, and slowly descended to the overall middle ground – matching the MDGT for the past year, and although they are two different sizes and two different shapes, the 1-carat and 5-carat stones in this comparison have had a very similar price trend over the last seven-and-a-half years.
Let us do another comparison, this time of a single size and shape with three different color and clarity combinations: 3-carat rounds that are D/FL, G/VS1, and L/SI2. They are top quality, mid-range, and low. Once again, their price history differ, and they reflect different trends. The price of the top-quality diamond shot high in 2011 and had the deepest decline of the three. The mid-range diamond had the least fluctuations and did not change much. The low color/clarity diamond had an above average performance compared to all diamonds, and an average performance compared to the two other diamonds in this comparison. Yet this is the diamond that has been outperforming most other diamonds in the past two years.
We can go on with these comparisons, but I think the point is clear: different diamonds have different price trends, are exposed to different price impacting forces and these forces impact at different degrees. This is to say that you cannot look at the overall trend and have a full understanding of all diamonds. During a downturn, there are diamonds that have price appreciation – and vice versa. Some diamonds will lose value, even if overall prices are rising. To fully understand this, a potential investor will need to look deep into the price trend of specific items.
This poses an important question: Why? Why do some prices move up, while others trend down in the same market? The answer is demand and availability. A few years ago, the Chinese government cracked down on cash transactions in the country as part of a drive against corruption. This impacted demand for top-quality diamonds, which meant that diamonds fit for wealth preservation have lost as much as 60% of their value.
Conversely, we see that there are buyers who feel that round-shaped diamonds, the most common shape, are not appreciating as much as they used to, and are seeking to buy other shapes. Such buyers are showing interest in pears and ovals, for example.
The conclusion is that while relatively stable compared to commodities, assets and other investment venues, diamond prices have their own price fluctuations. In addition, it is insufficient to only know whether prices are moving up or down. A savvy buyer would need to study the past trends, understand what impacted them, know what is currently happening in the market to try and understand where the market is going, and only then have the basics for an informed decision. Knowledge is the key component, and it is up to the diamond industry to ensure that reliable knowledge is accessible and available to anyone considering buying a diamond. Only then will we gain the trust of buyers – consumers and investors alike.
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 advisor.
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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.