The Colored Diamond Boom
RAPAPORT...
Fancy colored diamond prices are showing significant gains in 2013 while other goods struggle along. As a result, the various auctions and tenders held in the past two weeks continued to set records, hea...dlining the strength of the colored diamond market with both dealers and private buyers driving up prices.
Of course, this trend is not new. The strength of the colored diamond market has been well documented in this publication and others, maintaining a decade-long uptrend, even through the crash of 2008. But industry veterans note a significant change in the past year.
Eden Rachminov, managing owner of Rachminov Diamonds 1891, describes an onslaught of new players in the colored diamond market. “White goods have been soft in the past two years, while colored stones have been a good item,” he explained. “Therefore, many companies have decided to build an inventory of fancy colors. So instead of a healthy market that we traditionally had with five to seven major players, suddenly there are 30 to 40 companies in each country with fancy colored diamonds in stock.”
With more buyers around and diminishing supply, prices have continued to increase. While there is no formal price list for colored goods, Rachminov estimates that prices for pink diamonds are up about 30 percent from a year ago, while fancy intense vivid yellow goods are up around 35 percent, with lower-quality yellow diamonds up approximately 10 percent. Prices of fancy blue diamonds have increased by about 35 percent in the past two years, he added.
Similar estimates were reported from Rio Tinto’s recent Argyle tender of pink diamonds. Leibish Polnauer, of Leibish & Co., who won seven of the 64 Argyle diamonds on offer at the tender, said prices were about 35 percent higher than last year. He similarly reasoned that there were more people bidding. As a result, Rio Tinto fetched record prices with its top lot, a 2.51-carat, fancy deep pink diamond, selling for more than $2 million, or at least $797,000 per carat.
But apart from the growing dealer demand, the rarity of supply and a growing pool of wealthy consumers for these goods is fueling the rush and driving up prices.
Certainly, these goods are rare. As one dealer explained, they’re a niche within a niche within a niche. Rio Tinto’s Argyle mine in Australia, which the company claims produces more than 90 percent of the world’s rare pink diamonds, has commissioned underground mining to extend its life until 2020. But the mine is not expected to have too many years left beyond that and those rare stones are becoming harder, and more expensive, to find the deeper it gets.
That rarity is also spurring a new penchant for colored diamonds among collectors and investors alike. Growing wealth in Asia, Eastern Europe and the Middle East has helped maintain high demand for colored diamonds as the new rich recognize its investment value. In addition, the market has been buoyed as high-end consumers in the U.S. and Europe have regained some lost confidence.
Buyers were therefore spread geographically at the recent Christie’s New York Magnificent Jewels sale. Three of the top ten lots went to private Asian buyers, three to the international trade, two of the top buyers remained anonymous, and one lot sold to a member of the U.S. trade. The very top lot sold to UK-based Moussaieff Jewellers, which bought the rectangular cut, 8.77-carat, fancy intense pink, VVS1 diamond for $6.3 million, or $721,200 per carat.
Meanwhile, private Asian buyers dominated the recent Sotheby’s Hong Kong auction, in which the top lots were predominantly white goods. The highlight there was an oval, 118.28-carat, D, FL, type IIa diamond that sold for $30.7 million, or $258,708 per carat, setting a record for a white diamond sold at auction.
But those larger, high-end investment-grade diamonds are an exception in the white diamond space and another niche within a niche. Commercial diamonds have been volatile in the past five years and have not offered the same returns as their colored counterparts. The market has been especially cautious in the past 12 months; the RapNet Diamond Index (RAPI™) for 1-carat certified (white) polished diamond prices has dropped 5 percent in October from a year ago. Certified 0.30-carat to 0.50-carat goods have fared better as uncertain markets tend to shift toward lower price points.
In contrast, the strong demand witnessed for colored diamonds at the auctions has filtered down to commercial goods as well. Dealers explain that the rarity enhances the investment appeal of colored diamonds even among medium-to-lower-end consumers.
However, the market is not without limits. A showcase 7.59-carat, fancy vivid blue, IF diamond named the “Premier Blue” failed to sell at Sotheby’s Hong Kong. According to the Associated Press, bidding reached $16.1 million, which was below its reserve. Dealers that spoke with Rapaport News agreed that the piece was way over-priced and that “the blue was a weak color.”
There may also be a question if the colored diamond trade can handle the crowd. After all, it has traditionally been a very intimate market, with its own set of rules and a particular skill set. The lack of a formal or transparent pricing structure adds to its mystique and gives it a high-entry barrier. Therefore, it is likely that many of those newcomers who have entered the market will eventually drop out and seek their lost margins in other niche products outside the round, white diamond space.
But still, the outlook for colored diamonds remains positive. Rachminov dismisses the notion that the colored market may be in a bubble that will eventually burst. Polnauer and others agree with him. They justify that dealers have shifted to this market for a reason and continue to compete for an ever dwindling supply of goods. Prices have increased due to consumer demand and not speculation.
Nothing is completely bubble resistant. But for now, consumers are looking for something unusual and exciting, with real value, at a time when low interest rates continue to drive the wealthy to invest in collectible, connoisseur items. In such an environment, colored diamonds surely make the grade and are likely to outperform other assets in the short term. For now, the colored market remains the one bright spot of real growth in an otherwise stagnant diamond industry.
