Following a week that saw the Oppenheimer Blue break all auction records for a polished diamond, and in which the sale of his own Unique Pink Diamond broke the record for a pink stone, industry analyst and veteran diamond trader Ehud Arye Laniado examines the 'how' and 'why' of the recent spate of diamonds achieving record prices. The keys to shifting the paradigm for high-level diamonds from expenses to assets are transparency of information and, of course rarity: a timely essay as the rarest rough diamond in the world, Lucara's Lesedi La Rona, will make its final stop in Antwerp this week before going under the hammer June 29 at Sotheby's London, an event shaping up to be the pinnacle of an unprecedented year of record-breaking diamond auctions.
Last week I made another record breaking diamond sale. The 15.38-carat, fancy vivid pink, VVS2 Clarity, Type IIa Unique Pink Diamond sold for $31.5 million at Sotheby’s in Geneva, becoming the most expensive Fancy Vivid pink diamond to ever sell at auction.
I set another record in November when I sold the Blue Moon for $46.5 million – the largest sum paid for any auctioned jewel. In November 2011, the Sun Drop sold for $10.9 million, a record price for a yellow diamond. You may be asking, what is my secret?
Over recent years, I have extensively discussed several key principles: the need for transparency in polished diamond prices; the importance of knowing transaction prices of polished before buying rough diamonds; the necessity for full disclosure of information about any diamond offered for sale; and above all, the central role that rarity plays in long-term diamond value. Together, these principles provide the framework to purchase an asset that has a resale value.
All of the principles above were at play with each of my record transactions. Let’s take the Blue Moon for example (later renamed by the buyer, The Blue Moon of Josephine. It started as a 25.5-carat diamond found by Petra Diamonds in April 2013 at their Cullinan mine and offered on tender the following month. I, along with several other experts, examined the diamond closely. We considered what could be polished from the raw stone, and then placed a bid for it based on our understanding of the market.
“Understanding of the market” may seem like a vague description, so allow me to explain. When looking at a rough diamond, you need a great deal of expertise in order to assess the best way to polish it. With the possible outcome in mind, you valuate the potential price the polished diamond could be sold for. The latter requires carefully tracking the market, knowing transaction prices of diamonds of the same color, clarity, size and any possible irregularities the diamond may have.
Armed with that knowledge, my company Cora International, placed a bid for the rough diamond that reflected its potential polished outcome, the cost of planning and manufacturing the rough diamond, target profit, which we subtracted from the expected selling price. We went through the same process with the 110.3-carats, Fancy Vivid Yellow, VVS1 Clarity, pear-shaped Sun Drop Diamond, and the same again with the more recent Unique Pink sold last week. Both diamonds were mined in South Africa.
After winning the bids for these stones, we polished them with magnificent results. We submitted the stones to GIA and after the grading, asked the GIA to produce a monogram for the stones. A monogram is a detailed book which relates everything there is to know about the diamond, including its history and the history of similar diamonds. While this is not done for every diamond, at its core, it is precisely the process I have been advocating for diamonds in terms of transparency. Let every potential buyer know as much as possible about the diamond.
With all this in hand, the diamonds were ready to be sold.
All three buyers of the stones were private individuals who understand the importance of information. These buyers studied the diamonds, really learning about them. As part of this transparency, the GIA certificate of a diamond is accessible to all as it is considered public information (see the Unique Pink’s report here). This certificate provides not only the 4Cs, but also information on the irregularities, such as fluorescence, proportions, clarity characteristics and comments. This extra information, as I have often previously stated, is significant in determining value, and constitutes an important part of the purchase decision-making process.
After collecting all the relevant information, they and other prospective buyers decided that the diamonds were fitting assets for their portfolios. They understood that buying a natural polished diamond in this way is not an expense. These buyers are not purchasing jewelry, but an asset whose value can be tracked overtime, just like any other commodity.
Proof, you ask? When the Blue Moon sold in November 2015 at a record price for blue diamonds, a flood of sales took place. I estimate that more than $200 million worth of blue as well as other fancy color and white diamonds were sold at auctions in the six months that have passed since then. They include, for example, the De Beers Millennium Jewel 4, an oval-shaped IF fancy vivid blue diamond weighing 10.10 carats that sold for $32 million; and the Oppenheimer Blue that sold last week for $58 million and set a record as the most expensive jewel ever sold at auction.
The three diamonds I sold were all newly polished diamonds from recently mined rough, but the Millennium and Oppenheimer are older diamonds that were polished some time ago. They had been owned by private collectors who saw that the Blue Moon sold for a record price, signifying that prices of blue diamonds are rising. They decided then, based on the new pricing information, to sell their diamonds. This is no different from the decision investors make when they see that the price of their shares are rising and decide to cash in on it. Classic financial market behavior, and further proof of the resale value of diamonds.
These diamonds were sold at record prices. Even the Shirley Temple Blue, graded Fancy Deep Blue by the GIA received a top bid of $22 million. This proved that buyers can evaluate a diamond and take into account its irregularities, and that the market can determine price when all diamond characteristics are made available.
Why are diamond prices breaking records so often? When the market is well informed and people have access to information, they can act with confidence when making decisions. This is true when we buy a food item for a few dollars, a company share for several thousand dollars or a diamond for several million dollars. In fact, the higher the outlay, the greater a share it represents of a person’s capital, the more essential is the availability of relevant and comprehensive information.
Sotheby’s and Christie’s play an important role in this. With diamonds sold publically in growing quantities by these two auction houses (and others), they are becoming market makers.
Owners of diamonds around the world followed reports from Sotheby’s and Christie’s last week and set themselves to think seriously about possibly selling their diamond assets. Likewise, potential buyers are probably studying the latest results and contemplating if to purchase a diamond as part of their wealth preservation plan.
The key that enables all this to happen is what I call the crystal clear philosophy. I am promoting this philosophy because of the benefits it has to offer. As stated above, it is not limited to fancy color diamonds. As we see a fancy colored diamond market forming and people starting to pay higher and higher prices for these diamonds, we are also witnessing the growing acceptance of diamonds’ rarity and therefore diamonds’ potential resale value. Buyers and prospective buyers of these goods are not thinking in terms of jewelry but in terms of assets.
I must reiterate: The economy of rarity generates demand and demand creates resale value. This is an essential and underlying component of the future of diamonds as I see it. The recent wave of auction results are a direct outcome of this. To expand this to white diamonds, transaction prices must be known and made available to all. Transaction prices need to be accompanied by information on irregularities. As this happens, diamonds will evolve from components of jewelry to an asset class with resale value, bringing more money from beyond the traditional diamond jewelry buyers.
As these shifts take shape, the diamond industry must prepare itself to educate the public. We must offer full and complete information on the diamonds we are selling. Make no mistake, the fancy color diamond market is not the limit. A 1-carat, D, IF diamond is also rare, and the economy of rarity plays a role here as well. Together with the Unique Pink, many other diamonds, including white diamonds, were sold at auction in Geneva last week, which proves that they also have resale value.
At those and other auctions, fine diamonds are sold. Their sales generate a steady stream of income for the diamond industry. If we provide buyers with education, marketing, information on the economy of rarity, irregularities and known transaction pricing for every aspect of diamond characteristics, we have the power to transform the old sentimental paradigm of diamond selling into an asset paradigm that caters to a new audience outside of jewelry buyers, with money that wasn’t previously earmarked for diamonds. This will generate a greater revenue stream for the industry.
By including even 1-carat, D, IF diamonds as part of this asset base, we are not limited to the super rich, but providing access to a much wider general public. This is an important and valuable message to all – inside the diamond industry and out. Making these sales is possible, and the framework to do so has not only been laid out here in this column over the past two years, but has been proven to work in reality. I did so just last week.
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.
Ehud Laniado is a diamond expert with specialist expertise in diamond pricing and 40 years experience. Laniado is chairman of diamond businesses spanning mining, exploration, rough and polished diamond valuation, trading, manufacturing, retail and consultancy services. As a rough diamond buyer in Africa, in the 1970s, Laniado began studying the intricate and hardly known criteria which determine the value of all rough diamonds, from the cheapest to the rarest. Over four decades Laniado documented his findings and began forecasting the value of polished diamonds by examining rough stones. 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.