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When a consumer walks into a store to buy a diamond, the price they end up paying is engineered by an entire complex system. This system involves accounting for the costs of exploration and extraction of the rough diamonds, the cost of polishing the diamond, financing costs and grading costs.
Once the diamond is polished and graded, it starts to trade between wholesalers, jewelry makers and retailers. At this stage, extra factors come into play on top of the underlying costs. Chief among them are the generalized 4Cs high-asking benchmark prices. As benchmark price lists, they provide traders with general information to which they apply discounts. These discounts are based on each trader’s knowledge of the minutiae of the diamond and is determined by the comments and other extra information that appears on its certificate.
The current code for selling diamonds which applies between traders is based on the 4Cs at a magnitude level of loupe 10 and the comments provided by grading labs which lead traders to apply discounts.
However, once the diamond is in the store, it is offered to the consumer, who is not familiar with comments and their impact on the price of the diamond. At best, they are familiar only with the 4Cs, while comments are not considered when it comes to the price the buyer will pay.
The buyer may decide sometime in the future to resell the diamond. Most trades of this kind are made through professional traders, who will re-price the diamond’s comments. Consequently sellers might find themselves holding assets which do not possess economic resell value. Such a situation would be the direct result of a major gap in information and knowledge. Furthermore, until recently diamonds were sold on entirely sentimental grounds, not as assets with an economic value.
However, in order for Diamonds to make the transitioning from being considered a sentimental product only to becoming a product which possesses a resell value and may be considered as an asset for investment, the old way of selling diamonds must be changed - Namely consumers should be equipped with all the information needed to enable them to resell the diamond while achieving an economic value. This is where I am aiming too.
How to create resale value
Over the past year I have discussed the economic value of natural diamonds. I have demystified the fine details that constitute a diamond’s value, stressing that we need to disclose as many of these characteristics to consumers. I have emphasized that the economy of rarity is the principle factor behind the resale value of diamonds. However, one might ask how a consumer who owns a diamond actually sell a diamond for a fair price?
Many say that diamonds are not fit for wealth preservation because their price is an “unknown.” What they mean is that different retailers might price diamonds with similar or even identical 4C characteristics very differently. What these people often don’t know, is that the differences in price are sometimes the result of differences between the diamonds that the famous 4Cs simply don’t cover. These characteristics I call “irregularities”.
Irregularities are all those extra features of a diamond that are not reflected in the 4Cs but are stated in a grading report: comments, type of inclusions, location of inclusions, etc. Several weeks ago, I unveiled Mercury Crystal Clear™ and a transaction-based price list. This is a transparent system that tracks transaction prices throughout the diamond pipeline, taking into account the type of transaction (retail/wholesale), size of transaction, and includes full details of each irregularity the sold diamond may exhibit.
All this information is fed into a database. We then developed a specialized calculator into which all the details of any diamond can be entered – 4Cs, irregularities, even lab – and find a precise and current transaction price of any diamond. This is the system of the future. It dismantles the old paradigm of diamond knowledge and replaces it with a far more accurate, transparent, forthcoming and practical one. If selling diamonds in the past was all about emotion, this new system is all about reason. I want consumers to buy diamonds because they are beautiful and rare as well as because they have the potential to be an asset and a tool for wealth preservation.
My vision is to combine consumer awareness of the economy of rarity, complete transparency, a well-executed educational campaign, and access to an irregularities calculator, in order to enable buyers to purchase diamonds at a precise price, including a fee to the seller for the service. Under these conditions, the enormous price differentiation between buying and selling will be reduced to minimum except for the real changes in the price of that very specific diamond with its particular irregularities. This is how resale value is created!
The path forward
Over the past two years, I’ve advocated an increase in transparency. Show and disclose to a potential buyer everything there is to know about the diamond, and clearly explain how each characteristic impacts value. The reason this comes up so often in my articles is that disclosure of this kind will turn around and resolve the problem mentioned above: with full details, diamonds are fit for wealth preservation because they will become a “known”! If we provide consumers with all the information there is on a particular diamond and provide a transaction-based price list that takes into account the 4Cs and the irregularities, then every diamond-owner can know exactly what they have in their hands and how to track its value over time.
But what about the next stage – selling (or exiting) a diamond? After all, if you know your diamond’s characteristics and can track its changing value over time, you may at some point decide that it is time to sell. One of the biggest issues that the diamond industry faces in this regard is that there is no known mechanism for selling diamonds back into the diamond industry. This is because we are yet to tell the story of reselling diamonds.
Reselling – many options
There are a number of different channels for reselling which provide diamonds with their basic resale value. But before listing them, let’s remember what kind of diamonds we are talking about: one carat or larger, DEF color, FL-VVS clarity diamonds graded to have excellent cut grade. Diamonds that meet these 4Cs are fit for wealth preservation purposes, although all diamonds have resale value.
With a diamond in hand and full knowledge of its characteristics, a person can walk into any of these places and discuss selling a diamond. Provide them with knowledge of current prices – and they can check the price of that particular diamond on that very day they are considering selling it. Best known among these channels are the auction houses. Christie’s, Sotheby’s, Bonhams and more are very experienced diamond buyers and sellers.
Another place where a diamond can be sold is at one of the many traders located on 47th Street in New York City. Here, in the heart of the city’s diamond district, there are many traders always looking for a good purchase.
There are several other such places. In Antwerp, for example, other options such as Art Basel, offer opportunities for reselling. This international art show has long extended beyond art and even Basel, with annual events in Miami, Hong Kong as well as Basel, Switzerland. Diamond trading has become an important part of these events.
For a fee, an expert consultant will act as a go between by soliciting offers from potential buyer(s) for the person looking to sell. This is an interesting option because a consultant of this kind knows diamond prices, has a wide network of buyers each with an area of specialty, and stays up to date through the constant interaction with traders.
Closer to the retail level of trade, diamond owners and consumers can use a new service recently announced by De Beers. The diamond mining giant launched a polished diamond buying service called the International Institute of Diamond Valuation (IIDV). A person can send their diamond to IIDV and have it assessed and then receive a quote. Similar services include White Pines and Worthy, which also all buy diamonds from the public.
What the three services have in common is the wide scope of their activity – they do not limit themselves to one carat or larger, DEF / FL-VVS, excellent cut grade diamonds. Instead, they are willing to buy diamonds with a broader range of 4Cs, and in so doing they allow a much wider selling public to find a way to sell their diamonds for a return that more accurately reflects the irregularities of the diamond.
Knowledgeable diamond owners armed with all the relevant information on their diamonds and their price determining components, create an even playing field. With such information they can easily enter the wholesale circle where traders have the same information so when talking with potential buyers, a person knows exactly what the diamond is worth.
An empowered diamond owner has confidence in buying a diamond as an asset that has the potential of appreciating, serving at the very least as wealth preservation. It turns a diamond purchase from an expense into an asset that can be enjoyed as a jewelry item in the years between purchase and sale. It also provides the public with another way further diversify assets.
I know we are yet to arrive at a market where consumers can buy diamonds with all the information available about them, have easy access to wholesale transaction prices by 4Cs and irregularities, and easily sell a diamond based on this information. However, there is reason for hope.
Fancy color diamonds are already being sold in the way I’m suggesting: full disclosure, in-depth information about the diamond, through auction houses, with past and recent transaction prices fully known to sellers and potential buyers. This is the first wave of the future, and it is likely to include rough diamonds as well. Just last week it was reported that Russian diamond miner ALROSA has plans to offer diamond futures contracts on Moscow Exchange.
One thing to keep in mind is that the diamonds currently held by the public were probably purchased without all the information at hand. These owners may have a harder time assessing the value of their diamonds, especially if they paid a retail markup. They bought diamonds – and are used to thinking of diamonds – in terms of generalized 4Cs high-asking benchmark prices, not highly accurate and very specific pricing that reflects both transaction prices and all irregularities.
Why wait until the consumer market turns away from rare and beautiful natural diamonds? We don’t want to hear too late that we lost our consumer base because they were disappointed and lost confidence when they found that there was a lack of correlation between their buying price and the resell value. Instead, we need to take forward steps now, before it’s too late.
That should not deter us. I’m offering what seems to me a breakthrough concept – an idea that is within our grasp with education, transparency and knowledge. When Apple first introduced the personal computer, did they know that it would become a game changer? Perhaps, but they were doubted by their peers. Yet that breakthrough concept created a revolutionary new way of approaching computing, just as the iPod and iPhone revolutionized personal music devices and handheld cellular technology.
Together with Mercury Crystal Clear™, understanding the economy of rarity, full transparency, a well-executed educational campaign, access to an irregularities calculator, consumers will buy diamonds at more reliable prices.
Put together, and with some patience, we will take this idea to fruition and prove that there is a resale value for high-end diamonds while providing much-needed lifeblood to the struggling diamond trade.
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.