The Intricacies of Investing in Fancy Colored Diamonds

Market Analysis
21/12/2015 18:42

The New York Times writes that "If there is a holiday gift almost guaranteed to make a recipient swoon with joy, it is a diamond", but buying diamonds as an investment is tricky business. "The value of certain colored diamonds has increased while traditional white diamonds have fallen. Diamond dealers are talking about pink, blue and red diamonds as investments, citing a recent track record of double-digit returns." For example, the best-known pink diamonds are from the Argyle diamond mine in Australia. “They’re less and less available and more and more in demand. Fifteen years ago we bought Argyle pink diamonds for $10,000 a carat. Today it’s $150,000, $200,000, $250,000 a carat,” said Leibish Polnauer, president of Leibish & Company, a colored diamond dealer. Dealers say wealthy buyers in volatile economies view rare, colored diamonds as a hedge against economic uncertainty.

Yet there are others in the trade who question whether these stones will pay the dividends people imagine. It is not so simple to jump into the trade just based on the soaring prices. With white diamonds, the widely-known 4Cs drive prices, and there are established measures of quality, relatively transparent pricing, knowable transaction costs and liquidity. In the world of colored diamonds, value is more subjective, and prices can vary wildly, corresponding not only to the rarity of their colors but also to the vividness of the color itself. “It’s the strength of the color,” said Jordan Fine, president of JFine Inc., a dealer that specializes in colored diamonds. “A light yellow could be $3,000 a carat and a vivid yellow could be $15,000 a carat. A one-carat light pink could be $75,000 to $700,000 a carat for a vivid pink.” Yet discerning the vividness of a colored diamond can be more art than science. If white diamonds are likened to stocks, colored diamonds are private equity investments, with all the risk and reward such forays entail. Futhermore, "colored diamonds don’t have a price list or somebody managing the value," says Yaniv Marcus, founder of the Diamond Investment and Intelligence Center. In short, diamond and market knowledge, a long-term vision and a good advisor are needed before investing in an expensive and rare little stone.