Once again, exceptional diamonds are breaking size and price records at auctions. On Wednesday, a world auction record for a fancy light pink diamond was set at Sotheby’s auction of Magnificent and Noble Jewels, when a 33.63-carat fancy light pink diamond sold for $12.8 million. The day before, an emerald-cut, D color flawless diamond, weighing 163.41 carats set in an emerald and diamond necklace sold for $33.7 million at Christie’s Magnificent Jewel auction. This was the largest emerald-shaped diamond ever sold at auction.
The ongoing string of record-breaking prices, sometimes more frequent, at times slower, proves the importance of diamonds as investment-grade assets. Over the past 30 years, we have seen time and again that prices continue to rise, both when inflation is minimal and money is “cheap” or conversely when inflation and interest rates were high. Top and clarity diamonds with the best make continued to outpace inflation.
Although both diamonds were set in jewelry – the pink diamond was mounted as a ring – in both cases buyers and sellers believed most of the value of both items was in the diamonds, the main components of the sold items. This is not to discredit the importance or value of the design or provenance of diamond jewelry, as they can carry great value. Another item that sold for a terrific price at Christie’s last week was the Grand Mazarin, a light pink diamond weighing 19.07 carats. This diamond has been in the collection of four French kings, four queens, two emperors and two empresses. It sold for $14.5 million, a price that probably reflects the diamond’s provenance – but not only.
The Power of Color
A fancy intense blue rectangular step-cut diamond weighing 8.67 carats sold for $13.2 million, way beyond the high estimate of $10.6 million. A similar trend was seen at Sotheby’s, where 67% of the sold lots achieved prices above their high estimates. The common thread between this fancy intense blue diamond, the 33.63-carat fancy light pink diamond that was sold on Wednesday and the Grand Mazarin is that all three are fancy color diamonds. Since the Blue Moon was sold for a record-breaking price at an auction. in November 2015, a string of blue diamonds have been auctioned at record prices. This is a clear trend. The Unique Pink, which I sold at auction in May of last year, also broke a record price. It was part of a string of pink diamonds that sold for ever-rising prices, a trend that still continues.
The rarity of these fancy color diamonds and the recognition that these diamonds are so special are at the basis of the constantly rising prices. The recognition is the result of education. The public at large, and the investment community in particular – private investors as well as institutions – have long learned about the rarity of these diamonds and their uniqueness. Do we see the same trend with the very large D color, IF and FL clarity diamonds?
The last time a D color, flawless clarity emerald-shaped diamond that weighed 100 carats or more was sold was in April 2015. That diamond weighed 100.20 carats and graded ‘very good’ polish and only ‘good’ symmetry. That diamond sold for $22.09 million or $220,459 per carat. The 163.41-carat emerald-cut diamond is a beautiful diamond by all accounts, and was graded ‘excellent’ polish and symmetry. It sold last Tuesday for $206,266 per carat. There was not even a premium for the much larger size. How did D flawless +100-carat emerald-shaped diamonds lose 6.4% of their price in a span of two-and-a-half years? Bad marketing, a tough economic market, or lack of buyers? Not at all. The issue is education and knowledge.
The Power of Knowledge
With the exception of these two +100-carat emerald-shaped diamonds, when was the last time you heard of such a diamond being sold? I know of a few such diamonds and believe there have been more, however they were not sold in a public forum such as an auction. Because of this, their selling prices are not widely known to the public, and price appreciation of such diamonds is not added to the public’s education “database” of how much such diamonds should sell for. It’s not that such diamonds have not appreciated in value, it’s that this diamond suffered from the lack of price transparency.
When checking our own Mercury Diamond Index price tracker , for large D color, IF clarity square-shaped diamonds, we see that not only have they lost value since April 2014, they are performing below the overall MDGT index, as the following graph shows.
Mercury Diamond Polished Prices – Historic Performance D/IF 15 & 20-Cts Squares
Source: Mercury Diamond
The underperformance seen above is also happening with 3- and 5-carat squares as well as rounds, although their price trend behaves differently, given that they are accessible to a wider buyer market due to a lower total price.
Mercury Diamond Polished Prices – Historic Performance D/IF 3 & 5-Cts Squares
Mercury Diamond Polished Prices – Historic Performance D/IF 3 & 5-Cts Rounds
The reason for mentioning education and knowledge is because many do not understand how exceptionally rare D color flawless and IF clarity diamonds really are. We need to ensure that the knowledge that the diamond industry has on these diamonds and which investors already possess for fancy color diamonds is shared and reaches a wide audience. As I have stated time and again, it is education about the rarity of diamonds in general, the even greater rarity of gem-quality diamonds, and much more so of the top color and clarity diamonds that serves as the foundation of the economic model of investing in diamonds.
Another Aspect of Diamond Prices
So if D/IF diamond prices are sliding, this begs the question – how does this work with the fact the MDGT index, including for larger goods, is now moderating? Our own polished diamond price tracking research shows that prices of round large diamonds have stabilized lately after a period of softening prices. About three years ago, in late 2014, when polished diamonds suffered from a drop in demand, prices of round polished diamonds weighing 2 carats and more declined by a mid-single digit, a sharp decline in a short period. In the two-year period prior to the 2014 price decline, we saw solid price gains.
The simple answer is that not all diamonds are alike. Our indexes for 2-, 3-, 5-, 10-, and 20-carat round polished diamonds takes all color and clarity goods into account. Some diamond categories pushed their index up, while many others pressured it down. But if we look at investment-grade diamonds other than D/IF goods, we find that their price behavior over the years was positive. For example, 20-carat (20.00-29.99 carat) rounds, F color, VVS2 clarity have outperformed the general MDGT index, and although we saw a decline in November-December 2014 that continued into mid-2015, prices have stabilized since.
Mercury Diamond Polished Prices – Historic Performance F/VVS2 20-Cts Rounds
Round, E color, SI1 clarity diamonds weighing 15 carats had an even better run. Since January 2014, prices have remained steady and stable, and hardly suffered from the Nov-Dec 2014 price decline. Constant demand for a large diamond that is reasonably priced and accessible to a wider customer base than a D, flawless diamond has kept this item in good demand throughout the years.
Mercury Diamond Polished Prices – Historic Performance – E/SI1 15 Cts Rounds
Other well-performing items include 5-carat, F color, SI1 clarity square-shaped diamonds – mainly emerald- and cushion-shaped diamonds. Once again, not only have their prices outperformed the overall index and the index of that size range, it is one of the few accessible items that have appreciated in recent months. Not a typical sight in a period of declining prices.
Mercury Diamond Polished Prices – Historic Performance – F/SI1 5 Cts Squares
We can provide more examples that show that many items are beating the trend. What is important about them is that they are investment-grade diamonds. At the same time, they are much lower cost than D/IF goods. It is almost begging to say that they did well among others, because they are accessible from a cost standpoint. And that is the important message: there is a silver lining in the cloud of declining polished diamond prices. It is not much in the most common market of gem-quality polished diamonds, diamond jewelry consumers, but rather with a small group of buyers, those that have a broader view of diamonds and consider them more than just a component of jewelry. They look at them and see an asset. Along with this is another element in their diamond purchases: they are not an expense! Instead, they are an investment, value that remains in their pocket. This is an important aspect of diamonds. We need to reach this audience that is already half-way there, and educate them just a little more about the rarity of diamonds. Then they might start preferring D/IF diamonds to E&F/VVS-SI, and when they are ready, they could sell them in the market like any other asset.
The Path Forward Is Clear
We already emphasized the importance of education on rarity and other aspects of polished diamonds and that it is the foundation for investment. What needs to be added is current knowledge of the kind used in any investment market: pricing. With a simple research tool such as Mercury Diamond’s Polished Diamonds Past Performance tool, anyone can check and find a diamond’s past price performance, compare it to other economic assets and decide for themselves if they want to add it to their asset portfolio. That is an initial lesson.
The wider lesson is the importance of understanding the value of diamonds. If the wider consumer market would learn to value diamonds for themselves and their economic behavior over the years, they too would start buying diamond jewelry with the mindset that the diamonds it is set with are more than a component for beauty. When that day dawns, the overall price index will turn upwards, and prices will rise. Even if consumers only value the diamonds that are set in emotionally meaningful jewelry – engagement, anniversary, etc. – that has the potential to uplift a significant segment of polished diamonds and turn the tide.
It won’t happen by itself. It will require education, marketing and easily available pricing data as well. However, as last week’s auctions have proven once again, it is absolutely possible for diamond prices to appreciate, if potential buyers see the value they hold.
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.
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.