An uncut diamond, not showing the prized optical properties of cut and polished versions.Popular brilliant cut
Diamonds were largely inaccessible to investors until the recent advent of regulated commodities,[1] due to a lack of price discovery and transparency. The characteristics of individual diamonds, especially the carat weight, color and clarity, have significant impact on values, but transactions were always private. With the standardized commodity as an underlying asset, several market traded financial instruments have been announced.[2]
Diamond prices are influenced by global trends. The largest markets are USA (about half), China and India.[3] Since 2008, larger diamonds have appreciated better than smaller ones.[4][5]
Price fluctuations
Polished diamond prices vary widely depending on a diamond's carat, color, clarity and cut, sometimes referred to as the 4 Cs. In contrast to precious metals, there is no universal world price per gram for diamonds. The industry refers to price guides.
Rough diamond prices have historically been impacted by the mining companies controlling supply, most notably De Beers. However, after the dismantling of the De Beers cartel in 2001, the industry is now more fragmented, resulting in a higher percentage of diamond sales taking place in the form of auctions and other forms of open-market sales.
Since the 1950s, techniques can produce gem-quality diamonds of essentially any desired chemistry in sizes up to about 1cm. [6] Although some manufacturers do label their synthetic diamonds with serial numbers, there is no guarantee that a given diamond is not man made, although sometimes an unnatural chemical composition or pattern of flaws may suggest a diamond is synthetic. It is much cheaper to produce diamonds through artificial synthesis than to mine them,[7] although currently, the cost of synthesis is still significant. The inability to guarantee that a diamond is naturally occurring could undermine the premium price still currently charged over synthetic diamonds.[8] However, new technological advances have allowed some independent gem labs such as GIA (Gemological Institute of America) to issue a specific Synthetic Diamond Grading Report, which identifies a diamond as laboratory-grown and laser-inscribes it with "laboratory grown."[9]
Polished diamonds
There are several factors contributing to low liquidity of diamonds. One of the main factors is the lack of terminal market. Most commodities have terminal markets, and some form of commodities exchange, clearing house, and central storage facilities. Until recently,[when?] this did not exist for diamonds.[citation needed] Diamonds are also subject to value added tax in the UK and EU, and sales tax in most other developed countries, therefore reducing their effectiveness as an investment medium. While most diamonds are sold through retail stores at high margin, investment diamonds are usually sold at auctions or privately.
Diamonds in larger sizes are rare, and their price is dependent on the individual features of the diamond. Fashion and marketing aspects can also cause fluctuations in price. This makes it difficult to establish a uniform and readily understood pricing system.[citation needed]Martin Rapaport produces the Rapaport Diamond Report, which lists prices for polished diamonds. The Rapaport Diamond Report is relatively expensive to subscribe to and, as such, is not readily available to consumers and investors. Each week, there are matrices of diamond prices for various shapes of brilliant cut diamonds, by colour and clarity within size bands. The price matrix for brilliant cuts alone exceeds 1,400 entries, and even this is achieved only by grouping some grades together. There are considerable price shifts near the edges of the size bands, so a 0.49 carats (98mg) stone may list at $5,500 per carat = $2,695, while a 0.50 carats (100mg) stone of similar quality lists at $7,500 per carat = $3,750. Stones near the top of a size band (or rarer fancy coloured varieties) tend to be uprated slightly. Some of the price jumps are related to marketing and consumer expectations. For example, a buyer expecting a 1 carat (200mg) diamond solitaire engagement ring may be unwilling to accept a 0.99 carats (198mg) diamond.[citation needed]
There are numerous diamond grading laboratories, with each offering investors, consumers and dealers similar diamond-grading and verification services, including the Gemological Institute of America (GIA) and the CIBJO (Confédération Internationale de la Bijouterie, Joaillerie et Orfèvrerie), also known as the World Jewellery Confederation.[citation needed] If the standards set by such organisations are called into question, ramifications are felt throughout the diamond industry.[citation needed] In 2005, the GIA was sued by a dealer who had supplied diamonds to the Saudi royal family after the accuracy of GIA-issued certificates was questioned.[10] As a result of a subsequent investigation, four GIA employees were fired for breach of the GIA's ethical codes.[11] The GIA also claims to have changed some of its procedures to prevent such occurrences from happening again.[11]
The non-linear pricing of different sizes (weights) of diamonds means that it is not realistic to exchange, for example, two quarter-carats (50mg) for one half-carat (100mg). With commodities such as gold, it is clear that one 20-gram bar is worth the same as two 10-gram bars, assuming the same purity. In most terminal markets, there needs to be a readily available standard quality, or limited number of qualities, available in sufficient quantity to be tradeable. This is a major factor which affects liquidity. The many variables in diamond quality makes commodity-like pricing difficult, especially with rarer stones that merit special handling above standard-issue diamonds. [citation needed]
The investment parameter of diamonds is their high value per unit weight, which makes them easy to store and transport. A high-quality diamond weighing as little as 2 or 3grams could be worth as much as 100 kilos of gold. This extremely condensed value and portability does bestow diamonds as a form of emergency funding. People and populations displaced by war or extreme upheaval have used this portable asset successfully.[12]
In 2009, an exchange was launched by DODAQ to trade categories of polished diamonds. The DODAQ exchange is intended to be a terminal market for round, polished, certified diamonds (the most liquid part of the market) and hosts its centralised storage facility in a Freezone. The exchange is an attempt to overcome the traditional investment barriers of sales tax and low liquidity on the resale market. [citation needed]
In 2012, DODAQ nv and the Antwerp World Diamond Centre joined forces to create DIAMDAX. It is the first online diamond exchange to report the actual transaction price. The exchange provides its users with a fully automated trading platform and acts as counter party to both buyer and seller, offering anonymity to its users. [citation needed]
Rare "fancy colored diamonds" such as yellows, pinks, blues and greens have proved to be a secure investment over the five years preceding 2012.[13] This is based on the principles of supply and demand as well as new economies entering the market. Rio Tinto has announced that they intend to close the Argyle Mine in Western Australia in 2016–2018 which will impact the dwindling supply.
In its Global Diamond Report 2014, Bain & Co reports that demand for investment diamonds accounts for less than 5% of the total value of polished diamonds.[14] It also reports that diamond prices have benefited from 1.6x lower volatility than gold. Characteristics of investment-grade polished diamonds are highest color (D, E, F) and clarity (IF, VVS1, VVS2), weights ranging from 1 to 10 carats, triple-EX grading (Excellent Cut, Excellent Polish, Excellent Symmetry), and no fluorescence.
Polki (unfaceted) diamonds
"Polki" redirects here. Not to be confused with Pólki.
Sarpech (turban ornament), India, possibly Rajasthan, Mughal period, 18th century, gold, unfaceted diamonds, rubies, emeralds, enamel – Royal Ontario Museum
Old diamond jewellery in India, specially from the Mughal period, uses unfaceted diamonds. Mughal style jewellery has become popular in India recently[when?] featuring uncut diamonds termed "Polki" (which originally referred to a style of cleaving diamonds).[15][16] The diamonds used in modern polki jewellery are low grade[17] and do not have much investment value, even though polki jewellery can be expensive. The diamonds are backed by silver foil to allow light to reflect. The Kundan jewellery in India uses the same style, but it uses glass instead of diamonds.[18]
Funds
In June 2012, Finanz Konzept AG launched the worldwide first actively managed physical diamond fund, which invests in natural physical polished diamonds and coloured diamonds.[19]
In November 2012, PureFunds launched an Exchange Traded Fund listed on the New York Stock Exchange that invests in companies engaged in the diamond industry, rather than invest in physical diamonds.[20] The fund ceased trading on January 23, 2014.[21]
Mining companies produce and sell rough diamonds. Given the very high expense of operating a diamond mine, many diamond mining companies are public and/or owned by governments. [citation needed]
The largest diamond company in the world is Alrosa, which surpassed De Beers in carat production in 2008.[22] De Beers is privately owned by Anglo American (85%) and the Botswana government (15%), so its shares are not traded on the stock market.[23] The Oppenheimer family had previously owned a 40% stake in De Beers, but this was sold to Anglo American in 2011.[24]Rio Tinto and BHP[citation needed] are the next largest producers, but diamond mining is a small part of their commodity portfolio.
Recycled diamonds
Diamonds, because of their hardness, are one of the few gemstones that have a recycledmarket. Recycled diamonds are diamonds that have been polished and set into jewelry, then removed and possibly re-cut before sale back into the diamond industry. This sector accounts for 5%–10% of market supply.[25] Many jewelers typically offer to repurchase diamonds at a 15–20% discount relative to their selling price.[25]
Whether it is releasing capital to re-invest in more liquid stock, or generating greater margin on re-purchased diamond jewelry, repurchasing diamonds is part of an ongoing strategy for many members of the jewelry industry. In 2012, Tacy Ltd. stated that it expected $1 billion worth of recycled diamonds to be put back into the market.[26] In 2013, its estimation was $1.2 billion.[27]
The market
Diamonds of a certain size, generally half a carat and above, are traded and processed by the industry individually. Each has unique attributes and a corresponding unique market place. Diamonds of this size, whether recycled or not, have a similar market price. It is impossible to tell the difference between a recycled one-carat diamond (as long as it is undamaged) and a "freshly mined" one-carat diamond with the same characteristics, and the market does not differentiate between them.[citation needed]
Diamonds of smaller sizes are traded in parcels of similar stones, called 'melee,' after the French word for mix. Generally diamonds of exactly similar size, cut, shape, color and clarity are used in a single piece of diamond jewelry. If not, the stones would not match and the piece would not sell. Small recycled diamonds are treated differently from large individual stones. [citation needed] A single small diamond has limited value by itself. It is only of use if it can be matched with other similar diamonds, reset into jewelry and sold to a customer, thereby creating value. Small recycled diamonds need to be sorted, have their cut modified and resold to manufacturers in large parcels to allow them to pick matching stones to set in jewelry. [citation needed]
Diamond is a solid form of the element carbon with its atoms arranged in a crystal structure called diamond cubic. Another solid form of carbon known as graphite is the chemically stable form of carbon at room temperature and pressure, but diamond is metastable and converts to it at a negligible rate under those conditions. Diamond has the highest hardness and thermal conductivity of any natural material, properties that are used in major industrial applications such as cutting and polishing tools. They are also the reason that diamond anvil cells can subject materials to pressures found deep in the Earth.
A gemstone is a piece of mineral crystal which, when cut or polished, is used to make jewelry or other adornments. Certain rocks and occasionally organic materials that are not minerals may also be used for jewelry and are therefore often considered to be gemstones as well. Most gemstones are hard, but some softer minerals such as brazilianite may be used in jewelry because of their color or luster or other physical properties that have aesthetic value. However, generally speaking, soft minerals are not typically used as gemstones by virtue of their brittleness and lack of durability.
A ruby is a pinkish red to blood-red colored gemstone, a variety of the mineral corundum. Ruby is one of the most popular traditional jewelry gems and is very durable. Other varieties of gem-quality corundum are called sapphires. Ruby is one of the traditional cardinal gems, alongside amethyst, sapphire, emerald, and diamond. The word ruby comes from ruber, Latin for red. The color of a ruby is due to the element chromium.
Diamond cutting is the practice of shaping a diamond from a rough stone into a faceted gem. Cutting diamonds requires specialized knowledge, tools, equipment, and techniques because of its extreme difficulty.
Gemesis Inc. was a privately held company located in New York City. The company grew synthetic diamonds using proprietary technology.
A diamond cut is a style or design guide used when shaping a diamond for polishing such as the brilliant cut. Cut refers to shape, and also the symmetry, proportioning and polish of a diamond. The cut of a diamond greatly affects a diamond's brilliance—a poorly-cut diamond is less luminous.
Diamond clarity is the quality of diamonds that relates to the existence and visual appearance of internal characteristics of a diamond called inclusions, and surface defects, called blemishes. Clarity is one of the four Cs of diamond grading, the others being carat, color, and cut.
The Gemological Institute of America (GIA) is a nonprofit institute based in Carlsbad, California. It is dedicated to research and education in the field of gemology and the jewelry arts. Founded in 1931, GIA's mission is to protect buyers and sellers of gemstones by setting and maintaining the standards used to evaluate gemstone quality. The institute does so through research, gem identification, diamond grading services, and a variety of educational programs. Through its library and subject experts, GIA acts as a resource of gem and jewelry information for the trade, the public and media outlets.
Of all the precious metals, gold is the most popular as an investment. Investors generally buy gold as a way of diversifying risk, especially through the use of futures contracts and derivatives. The gold market is subject to speculation and volatility as are other markets. Compared to other precious metals used for investment, gold has been the most effective safe haven across a number of countries.
Martin Rapaport is chairman of the Rapaport Group, founder of the Rapaport Diamond Report and the RapNet online diamond trading network. Rapaport has been called a "maverick" within the diamond industry for standardizing and publishing diamond prices. He has also been criticized for non-transparency in his methodology, as well as his silence over a corruption scandal involving the GIA, with which he has strong ties. Rapoport was an early proponent of the Kimberley Process aimed at limiting the number of "conflict diamonds" in worldwide circulation.
Diamond is one of the best-known and most sought-after gemstones. They have been used as decorative items since ancient times.
Platinum as an investment is often compared in financial history to gold and silver, which were both known to be used as money in ancient civilizations. Experts posit that platinum is about 15–20 times scarcer than gold and approximately 60–100 times scarcer than silver, on the basis of annual mine production. Since 2014, platinum prices have fallen lower than gold. Approximately 75% of global platinum is mined in South Africa.
Petra Diamonds Ltd is a diamond mining group headquartered in Jersey. Petra own one of the world's most productive mines historically, the Cullinan Diamond Mine is famed for having produced the world's largest rough and polished diamond. The company is listed on the London Stock Exchange.
Brown diamonds are the most common color variety of natural diamonds. In most mines, brown diamonds account for 15% of production. The brown color makes them less attractive to some people as gemstones, and most are used for industrial purposes. However, improved marketing programs, especially in Australia and the United States, have resulted in brown diamonds becoming valued as gemstones and even referred to as chocolate diamonds.
Graff is a British multinational jeweller based in London. It was founded by British jeweller Laurence Graff in 1960. A vertically integrated company, Graff operations comprise the design, manufacture and retail distribution of jewellery and watches.
A recycled diamond is a diamond which had a prior use and has re-entered the diamond supply chain.
WP Diamonds is a multinational company that specializes in the recycling of diamonds. The company is headquartered in New York City and has offices in the UK.
Pink diamond is a type of diamond that has pink color. The source of their pink color is greatly debated in the gemological world but it is most commonly attributed to plastic deformation that these diamonds undergo during their formation.
A red diamond is a diamond which displays red color and exhibits the same mineral properties as colorless diamonds. Red diamonds are commonly known as the most expensive and the rarest diamond color in the world, even more so than pink or blue diamonds, as very few red diamonds have been found. Red diamonds, just like pink diamonds, are greatly debated as to the source of their color, but the gemological community most commonly attributes both colors to gliding atoms in the diamond's structure as it undergoes enormous pressure during its formation. Red diamonds are among the 12 colors of fancy color diamonds, and have the most expensive price per carat. They will typically run in the hundreds of thousands of dollars per carat range. Since they are the rarest color, it is difficult to find them in large sizes, and they are mostly found in sizes less than 1 carat. Red diamonds only exist with one color intensity, Fancy, although their clarities can range from Flawless to Included, just like white diamonds. The largest and most flawless red diamond is the 5.11 carat Fancy Red Moussaieff Red Diamond, which has internally flawless clarity.
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