Investing In Diamonds: Why Investors Need To Understand The Basics
Rodion Ksonzenko, founder and CEO of Magnat family DMCC, Magnat fine jewelry & Seed jewelry.
Are all diamonds valuable? How can you approach a diamond investment wisely? Before answering these challenging questions, I’d like to educate you on this mineral.
Over my 10 years in the jewelry industry, I’ve encountered countless people disappointed with diamonds. Their negative experiences impact the entire industry, and sometimes I have to fight false stereotypes and labels. Often, this is due to a lack of knowledge.
My jewelry company works with investors, and I’ve found there’s little education in the diamond investment and fine jewelry markets. For investors who are interested in this space, I believe that without understanding some basic information about diamonds, it’s impossible to make a smart purchase and an informed investment.
Understanding The Basics Of Diamonds
A diamond is a carbon mineral with the highest degree of hardness on the Mohs scale—a 10 out of 10. This makes it not only a beautiful stone used in jewelry after its processing, but also a multifunctional tool found in the most unexpected fields, such as medicine, electronics and more.
Diamonds form deep within the Earth, at depths of 150 kilometers to 200 kilometers below the surface, under colossal pressures of 45 to 60 kilobars and temperatures of 900 to 1,300 degrees Celsius. Most diamonds are estimated to be between 1 billion and 3 billion years old. Over time, diamonds rise close enough to the Earth’s surface for humans to mine and refine them.
Once a diamond reaches human hands, it is evaluated to determine the most advantageous cut that will maximize its value. After cutting, the stone is assigned color, clarity and other characteristics according to the “4Cs system,” which is the standard for determining diamond quality. The 4Cs stand for color, clarity, cut and carat, per the Gemological Institute of America (GIA). Typically, cut stones are traded on an exchange, where traders sell them to jewelry manufacturers, private clients, collectors and investors.
However, not all diamonds can be used for jewelry. Only about 20% of mined diamonds are said to meet the requirements for this purpose. The remaining 80% are considered industrial-quality diamonds.
You might think this means that 20% of mined diamonds are valuable, right? This seemingly logical conclusion conceals the jewelry market’s greatest misconception. In my experience, only about 3% of all gem-quality diamonds are truly valuable.
Factors That Can Impact Investment Value
Only the rarest specimens with the highest characteristics can preserve and increase the value of a diamond investment. Why is this? First, it’s important to understand the basic classification and characteristics of diamonds. There are two types of diamonds: classic and fancy.
Classic
Classic diamonds are colorless and graded using the 4Cs (color, clarity, cut and carat). These are the main characteristics that influence a classic diamond’s pricing and description. Of course, there are many additional factors that can influence price as well, such as fluorescence level, symmetry, polish level, certification and the place of purchase. In terms of cuts, they can be round, radiant, emerald, cushion, oval, pear, etc.
Fancy
Fancy diamonds are colored. Sometimes, diamonds have vibrant and saturated colors, including red, blue, pink, green, orange, yellow, brown and many other complex and mixed shades. They are graded by color saturation, such as fancy light, fancy, fancy intense and fancy vivid. And it is precisely the saturation of color that plays a major role in a fancy diamond’s value. Vivid diamonds, like a fancy vivid blue, are extremely rare.
So what are those 3% that are most likely to preserve and increase an investment? These are the rarest classic and fancy diamonds that possess ideal characteristics.
Best Practices For Investors
So, if you look at diamonds not just as a beautiful object but also as a potential investment, then you should think about the following:
1. Consider all the attributes that enhance a fancy diamond’s value. As we’ve already discussed, fancy vivid is the rarest category of diamonds, and rarity is a key factor in choosing a profitable investment. But don’t forget that there are many other factors and characteristics of a diamond that are worth considering. It must be of the highest quality and have a high clarity rating. Consider whether it also has a certificate from a reputable gemological laboratory.
2. Evaluate large diamonds holistically. Diamonds over 11 carats fall outside the Rapaport Price List, a guide for pricing and assessing market values of the world’s most common diamonds. Therefore, diamonds weighing more than 11 carats are rarer, and such stones are difficult to mine. However, you can’t rely solely on their weight as an indicator of value. A “flawless” diamond is more likely to be a profitable investment, which means other parameters, like color and cut, must also be top-notch.
3. Understand how other factors impact rarity. Pairs and well-matched lots of ideal diamonds can offer investment appeal, as ideal sets of stones are hard to come by. However, the influence of lab-grown diamonds, which are visually identical to this category of diamonds, calls into question the benefits of such investments.
Risks To Consider
Even if you’ve chosen a rare stone with ideal characteristics, it’s crucial to understand that such a diamond must be sold at a fair price.
A major risk investors face is purchasing a diamond or diamond jewelry from the wrong place. For example, some brands’ stones are too overpriced to offer a strong return on an investment. I’ve also seen some resellers or smaller businesses, due to limited capacity, use multiple intermediary companies to get to the desired diamond, which increases its cost. It’s important to ensure you’re getting a fair price. A couple of alternatives you can explore are diamond exchanges or checking top auctions.
Final Thoughts
In conclusion, if you’re considering investing in a diamond or diamond jewelry, its rarity is among the main factors to consider. How unique is the stone, and how difficult is it to obtain? However, remember to keep the best practices above in mind as well. Together, these strategies can help position you for success as a diamond investor.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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