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Tuesday, December 1, 2009

More on Diamonds

Okay so we understand a little bit about the cut of diamonds. In fact, it is the single most important feature when looking at a stone. You can have a D (top) color, flawless diamond and if it's poorly cut it will look like garbage and you can have a low color, low clarity diamond and if it is ideal cut it will still look good. However diamonds are truly a dime a dozen. There are millions and millions of diamonds out there available and already in jewelry. So what is it that keeps the price so high?

It used to be that DeBeers, the world's largest diamond producer, had a virtual monopoly on the market and they were able to influence the pricing of diamonds by simply stockpiling goods if things were slow, and releasing them when they saw fit. Now mind you, DeBeers being a monopoly actually helped most people (yes even you consumers out there). They were able to pretty much guarantee that diamonds would increase in value at or slightly above the rate of inflation every year. How was this good for the consumer? Well it meant that someone buying a diamond engagement ring in 1940 would be able to resell it in 1980 when either the husband or wife might have died for more money than they paid for it (even taking retail markups into consideration). It wasn't an investment (far more money could be made in the stock market or property) but it generally increased in value.

Additionally DeBeers was first formed because when diamond mines were first found in Brazil the prices plummeted until the mines were pretty much mined out and then prices went sky high. Then when diamonds were found in Africa the prices plummeted again until the first mine was played out and then they would skyrocket again and so on every time a new mine was found. It wasn't good for the miners, the dealers or the buyers as no one had any idea of what to expect or how to price a product that fluctuated so wildly in price.

Recently however, DeBeers has reduced their control of the market to below 60% so that they could be allowed to operate in the United States (which doesn't allow monopolies to operate here---although I'm not sure that our oil companies don't constitute just that). But strangely enough diamond prices did NOT plummet after this happened. Why not? Because all of the producers recognize the fact that if they start undercutting each other endlessly they eventually will make no money at all on the product and how can they stay in business if they do that? The retail price of diamonds has gone down in the last few years but that has to do with the Internet. The wholesale prices have continued to rise (although this year, due to the economy, a small drop occured).

But here is the interesting thing about diamonds. There are millions and millions of stones out there. But what there are NOT is millions and millions of top color (this means colorless D, E or F color stones), top clarity (VS or better) that are also ideal cut. I routinely appraise customer's jewelry and I can assure you that the bulk of the diamonds people own are mid range (H or I) to poor color (O or worse) and SI clarity or worse. A huge amount of material is in the marketplace (especially today as people become more price conscious and are willing to pay more for junk as long as it's got a designer's name attached to it) that wouldn't have even been sold as gem grade diamond thirty years ago. A lot of it is truly industrial grade diamond. One out of every two to three hundred stones I appraise is top color and top clarity.

Why am I telling you this? Because it is my belief that if you are going to buy a stone that is truly rare then you should get one that is, in fact, rare. You wouldn't come to me looking for a fine sapphire if you could find one at Kmart or Walmart or any other mass manufacturer (actually you won't find them there). You would come to me because you want something that is truly rare and desirable and that very few other people actually own. So, in my humble opinion (I'm not really humble, but what the heck), if you want to purchase a RARE diamond then you need to get the following: A stone that is D, E or F in color (or lack of color as these are actually colorless stones), VS2 clarity or better (preferably VVS2 or better) and is an actual American ideal cut diamond. These stones constitute a very, very small percentage of all the diamonds out there.

Admittedly if you're looking for a 2 ct. diamond you are going to be talking about some significant outlays. Stones in the VS clarity and top color range, ideal cut, are going to start at about $20,000. But it is my belief that it is far better to have a much smaller, high color, high clarity stone that is truly rare then to simply buy something because it's big and in your budget range. I would rather have a half carat D color, Flawless stone than a 1 ct. SI1 clarity, H color. After all, almost no one else has stones like that, and unless they're all shopping at Daniel R. Spirer Jewelers, none of your friends will have one either.

If you would like some more details about the color and clarity grading of diamonds there are a ton of websites out there but you might check out the GIA website or the AGS website.
Pictured above are some new custom earrings I did recently for some customers. Other than having a few small diamonds on them they have nothing to do with diamonds but they came out real nice so I thought I'd post them (albeit one of my mediocre pictures).

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