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To date, we have highlighted diamonds’ exchange value while all along calling for greater transparency. One of the most significant issues in understanding the value of diamonds is the many components of its value-determining characteristics and the complex interplay between them. Consumers had no way of valuating diamonds, of unlocking the valuation complexity. They often relied on an expert, usually a specialty retailer, to reveal these intricacies.
The introduction of lab-made goods in the market seemed to introduce a competing product to natural diamonds. This is true, if at all, in a single capacity – beauty. However, there is another aspect of natural diamonds, one in which lab-made cannot compete – value of exchange.
Ironically, the introduction of lab-made goods only brought forward natural diamonds’ value of exchange. It is now our role to bring new consumers closer to the concept of value of exchange in the context of natural diamonds.
We already know that the new consumer is a savvy one – very aware and very discerning. The new consumer is not swayed by empty slogans, and expects to know more about the products they buy. In the case of diamonds, price transparency is very important.
If a consumer chooses to pay a higher price, because, for example, beauty is the top priority, then that is all right. Retail has plenty to offer consumers beyond the value of a diamond – service, design and more.
Those interested in resale value on the other hand, will want to know more about a diamond’s economic performance.
The first step in such a large outlay, is to show consumers who see a diamond as an item without utility that it does not have to be simply an expense. Buying a diamond wisely allows a consumer to turn this outlay into an asset. The consumer must be able to track the value of a diamond easily by knowing its characteristics and checking the combination of those characteristics against a reputable source of data.
Taking the first step
In this first of a series of articles, we will show how transparency helps consumers reach informed decisions. Transparency and education will go a great distance to making this possible.
To start, transparency of natural polished diamonds requires a reflection of wholesale prices to avoid retail and branding related mark ups. It demonstrates to end buyers – consumers – how stable the value of a specific diamond is. Just like the purchase of any asset, knowing if value is increasing or decreasing, and the historical trends, is an element in the decision-making process.
We always want to know if the asset we are considering has a stable value over time, or if it is volatile. Is volatility significant enough to be beyond our risk-taking philosophy or is it very moderate and within our risk-taking guidelines? Most importantly, someone considering purchasing a diamond should be able to find this information in public sources as is the case today for other similar asset classes.
Transparency for all
To support this, and as part of Mercury Crystal Clear™, below is a look at the changing value over the past six years of seven different diamonds. All of the tracked diamonds are GIA certified of excellent make and symmetry, with no fluorescence, as tracked and analyzed by us.
The tracked diamonds shown below are 1 carat rounds, and include H color in FL, VS and SI clarities, K color in FL, VS and SI clarities, and a D color Flawless diamond. We compare them to two common economic indicators: CPI and S&P 500 and all are indexed to May 2009.
The three graphs above show us that the CPI is a very moderate indicator, up just 11%, while S&P increased greatly during the May 2009 - October 2015 period, in which it rose 139%. In contrast, the diamonds in the comparison above exhibited a different trend: a rise until July 2011, followed by a sustained moderation in price and a recent dip followed by a small recovery.
From beginning to end, most of the diamonds compared in the chart above exhibited a moderate value increase, as shown in the following table:
Another trend is that the H color diamonds tended to exhibit more volatility than the K and D color diamonds we looked at. Among the Flawless clarity diamonds, the H color exhibited the largest value gain at the end of the period while the D color exhibited a small decline.
With this information in hand, a consumer wishing to use a portion of his or her savings to purchase a diamond – viewing it as an asset – will have a new and valuable tool to help make the decision. This, of course, has the power to radically change the decision-making process – and for the better. It provides transparent, widely available and clear information, perfectly befitting an era of smart and sophisticated consumers around the globe.
In a class of their own
It must be remembered that natural diamonds are not limited to celebrating romance and love. They have the potential to be an asset class for wealth preservation – as many around the world have already discovered and acted upon.
With that in mind, the ability to access transparent, detailed wholesale values of natural polished diamonds on a regular basis opens the gates to other options, such as a spot market. A spot market would be the ultimate arena for diamonds as assets, traded on the basis of known values.
With an expected decline in global diamond production, the economy of rarity plays another important role in the value of natural diamonds. Together, rarity and transparency allow for a new economic era for natural diamonds.
Tools for the future of diamonds
Taking transparency a step further, below is an analysis of wholesale prices of 1 carat rounds by color and clarity (figures are in hundreds). This is a new tool, mainly for non-diamond traders, based on real trading prices from the past month. They do not reflect any premiums or discounts that retailers may place on their sales.
This tool, and those that follow it, is different from the benchmark tools currently used in the diamond industry. Those are based on asking prices as opposed to real transaction prices. This tool adds transparency to the market and is an important step forward to 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 introducing additional buyers into the market.
The following list of natural diamonds in a variety of shapes, colors and clarities, ranging in size from 1 carat to nearly 3 carats, views data from the standpoint of a budget of $15,000. It is based on the same wholesale October 2015 prices as presented in the grid above. This can be another important tool for considering a purchase, aiding consumers who naturally do not have the same knowledge as an industry insider. Next week we will look at irregularities and how they impact value.
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.