Diamond Investments - Investing in Diamonds

Fancy color diamonds are a class that demonstrates many unique characteristics that other assets do not. They are affordable, durable, and easy to conceal, transportable, and not subject to cartel control. There is no shelf life, they never lose their luster or shine and will look as good as new 100 years from the time they are originally polished. They have well established valuation methods, and can be appreciated and utilized on a daily basis.

However, perhaps one of the most interesting characteristics of fancy color diamonds is their price resilience in the face of adversity and long-term price growth. Currency debasement around the world has led to the “smart money” seeking hard assets – assets which cannot be created by a printing press or the tap of a keyboard; and it is well known that both literally and figuratively, there are not many assets harder than diamonds.

A buy and hold strategy in the stock market may not always bear fruit, however it seems that by looking back over the past three decades, that such a strategy in the fancy color diamond market promises to show a rewarding outcome. The reason for this is because every stone is unique. Buy a Ferrari and you can order the color of the paint and the upholstery; buy a fancy color diamond and you purchase a one-off, something exquisite that no one else currently possesses.

Price Definition

The price of a fancy color diamond is affected by a combination of so many factors, including:

• Size: the price per carat of a 1ct stone will not be half the price of a 2ct diamond and certainly not 1/5th the price of a 5 carat stone.

• Shape: certain diamond shapes are more expensive than others. Round is the most expensive, followed by Emerald and Princess. Assuming a similar clarity and color, a Radiant or Cushion shaped stone will cost less than a Round diamond.

• Clarity: stones with high clarity (IF-VS), will be more valuable than SI-I clarity stones.

• Color: the most important factor in fancy color diamonds is the actual color. There may be two stones with identical specifications (same color grading, similar clarity, same shape, and similar size) but the color of the stone will determine its value. If the color of one stone is intense and the other weak, even though the specifications are very similar, the stone with the stronger color will be sold for a much higher price than the equivalent stone with a weaker color. With fancy color diamonds, color is the king!

There may be occasional price fluctuations caused by financial crises, seasonal factors in the diamond market, or world tragedies (9/11, tsunami, etc.); after all, the price of fancy color diamonds is also subject to human factors. However, gram for gram, millimeter for millimeter, fancy color diamonds hold more value than possibly any other element known to mankind.

Pink Diamonds

Possibly the most desired color, pink diamonds are very rare and renowned for their strong investment potential.

Prices of fancy intense pink diamonds of between 1-2 carats:

Rose from USD10,000/carat for this 1.59 carat Fancy Intense Purplish Pink diamond in 1995

to  USD100,000/carat for a 1.59 carat Fancy Intense Pink diamond in 2007.

That is a 1,000% increase in 12 years or 83% annually.

• We see that in 1998 a 1.97 carat Fancy Intense Pink sold for USD69,000/carat  ,
• and that in 2002, a 2.04 carat Fancy Intense Purplish Pink Emerald shaped diamond was sold for USD95,000/carat (same price as a 1.59 carat would be sold 5 years later).

In 2005 a 2.08 carat Fancy Intense Pink Emerald shaped stone was sold for USD116,000/carat,

and a 2.05 carat Intense Pink was sold for USD 125,000/Carat ,a price increase of 68% in 7 years. 

The graph below shows the price increase in Intense Pink diamonds larger than 3 ct in auctions held in Sotheby's and Christies  between the years 1995 -2011.
 

Click to enlarge

Prices of fancy intense pink diamonds of 3 carats and above:

Exhibited the following price movements - 

• In 2003, a 3.58ct Fancy Intense Pink Pear shaped stone was sold for USD115,000/carat.
• By late-2007, a 3.86ct Fancy Intense Pink Oval shaped diamond was sold for USD390,000/carat,
• In late-2010, a 4.59 carat Fancy Intense Pink was sold for an amazing  USD625,000/carat

A 443% increase from its 2003 level, or a 63% annual return.

In mid- 2011, the price had stabilized at USD525,000/carat.

However, by late-2010, two large specimens were auctioned for a median USD1,600,000/carat for "The Perfect Pink" (14.23 carat Intense Pink) and USD1,850,000/carat for "The Graff Pink" (24.78 carat intense pink). Have a look at some of the most famous pink diamonds sold at auction.

Blue Diamonds

Blue, the color of nobility, is amongst the rarest and most expensive of fancy color diamonds.

Fancy intense blue diamonds of between 2-3 carats:

Rose almost in a straight line since 2002:

• late-2002,  a 2.18 carat Fancy Intense Blue Emerald shaped stone sold for USD 180,000/carat
• late-2011, a 2.28 carat, Fancy Intense Blue, Marquise shaped stone traded at USD400,000/carat.

This represents a 122% increase or 13.5% annual price increase.

 The graph below shows the price increase in Intense Blue diamonds of sizes between 2ct-3ct in auctions held at Sotheby's and Christies between the years 2002 -2011.

Click to enlarge

Prices for fancy intense blue diamonds exceeding 5 carats are rising as well:

• In 1998, a 5.32 carat Fancy Intense Blue Emerald shaped stone was sold for USD285,000/carat.
• In late-2007, a 5.04 carat Intense Blue Radiant shaped stone was sold for USD570,000/carat,
• in mid-2011 a 6.60 carat Fancy Intense Blue Emerald shaped stone was sold for USD830,000/carat.

In mid-2010 a new world record for an Intense Blue was achieved when a 7.64 carat Intense Blue Cushion shaped stone was sold for the amazing price of USD1,050,000/carat (USD8,000,000 in total).

The graph below shows the price increase in Intense Blue diamonds larger than 5 ct in auctions held in Sotheby's and Christies  between the years 1998 -2011.

Even at current prices of approximately USD800,000/carat,

this represents an almost 250% increase from 1998 or a 19% potential annual return.

Click to enlarge
 

Same stone sold twice for more than double the price!

A modified rectangular-shaped 3.17 carats Fancy Intense Blue diamond with an IF clarity, was sold twice with in 5 years at Christie's auction house. 

• in 2006 was sold  for USD320,000/carat.
• The very same stone was sold again in 2011 for USD755,000/carat.

This is over a 110% increase in only 5 years (22% annually).

Results

So what can be gleaned from this data? In general, fancy color diamonds exhibited greater returns with less volatility than most asset classes.

Gold, which is currently on an enormous bull run, is up approximately 495% from its 2001 lows. It has had many corrections during its climb, with corrections of up to 30%. It took the price of industrial equities, as represented by the Dow Jones Industrial Average, almost seven years to surpass its high set in 2000 and today is still only 6% above those levels. High tech stocks as represented by the NASDAQ are still 46% below their high set in 2000.

Price corrections have been of a much smaller magnitude and rises more pronounced for the fancy color diamonds discussed in the previous five years than in the period preceding it. In fact, since 2002, the entire spectrum of fancy colored diamonds has seen annual price increases from 10% to 35%. Perhaps this is attributable to a greater and broader appreciation of this previously “unknown” market.

With supply limited and the Chinese, Indian, Russian, and Latin American markets beginning to enter the fray, the appreciating price trend for fancy color diamonds seems to be assured. And remember the old truism from the financial markets – The Trend is Your Friend.

For more information on Fancy Colored Diamond Investments, please don't hesitate to contact us at:

Email: info@leibish.com

Phone:  Toll free 1-855-Leibish , international 972-3-6132122

Contributor: Benji Margolese

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