Why Do Investors Want Fancy Color Diamond Prices to Fall?

It makes sense that investors, whose goal is to buy low and sell high, would want the prices of fancy color diamonds to fall every so often so that they can earn a significant profit when they choose to sell. However, this occurrence is one that all major fancy color diamond dealers make every effort to avoid. After all, they are dealers, and dealers make money buying diamonds at a lower price and selling for a premium, just like any other business in the world. So why do we want prices to fall? Maybe because lower prices would have a negative psychological impact on diamond investments? Or maybe it would cause fear, similar to rises and falls in the stock market, which make investors get emotional and make the wrong decisions.

Record Breaking Prices at Auction

For about the last 30 years, prices for some of the rarest diamond colors such as pink, blue and red have increased substantially. We derive this information from the only public forum available to the public, the auction houses. We have extensive statistical analysis about pink, blue, red, green diamonds sold at auction for the last 20 years, divided into several size categories so that the information can be better understood. We also divided the information based on the various color intensities for better analysis of the prices and the results. In some diamond colors, prices have increased 30 fold, while others have increased less than 5 fold.

What about prices for diamonds that change hands privately? In some cases, it is dealers who acquire very rare diamonds at auction, and then further sell them to a private individual, who usually prefers to remain anonymous and pays a premium (for example the case of the famous sale of the Oppenheimer Blue diamond sold at auction back in May 2016, or the two rare diamonds recently acquired by Graff Diamonds in November). In other instances, private buyers have no problem revealing themselves to the public after the acquisition of the diamond at auction (such as the sale of the Blue Moon last year).

 

14.62 carat openheimer blue

The 14.62 carat Fancy Vivid Blue “Oppenheimer Blue” diamond whose private owner remains anonymous

Image credit: Christie’s

 

blue moon of josephine

The 12.03 carat Fancy Vivid Blue “Blue Moon of Josephine” diamond whose owner is publicly known – businessman Joseph Lau

Image credit: Sotheby’s

Mood and its Effect on the Industry

The diamond industry has been built by emphasizing the relationship of diamond gifts to emotions and relationships. Marketing is very much focused around happy events such as engagement, weddings, birthdays and anniversaries. When people are less happy in general, it directly affects the industry. We can see such effects during overall economic downturns. The purchasing is indirectly affected, as people are more concerned about economic stability, and therefore this will affect their mood, and subsequently their purchasing of diamonds and diamond jewelry.

Market Correction in the Diamond Industry

Like any industry, the diamond industry is not immune to market correction. We have seen colorless diamond prices having a major downward shift of prices since late 2014. Currently the prices are stabilizing, and market players suggest that in 2017 we should be able to see an improvement. For fancy color diamonds, overall, prices have not shifted down like their colorless counterparts, but rather have experienced a much smaller drop. This drop is mainly affecting the color diamonds that have secondary and even third color and not pure color diamonds, especially the larger and rarer pure colors like pink, blue, red, orange, green, purple and violet. These pure colors have even increased in prices (unlike any other diamonds in the market) simply because they are rare and unique.

Opportunities to Buy vs. Hold

Those that are working daily with fancy color diamonds, will always be able to find a good deal. A good deal can arise if a dealer has come to a position where he requires cash for various reasons, and may find it necessary to sell a unique fancy color diamond for less than its current market value, even if the value has not really come down. It is all about the opportunity cost of having inventory sit around. If there is no need for cash, then there is no need to sell at a discount, and over time, prices will continue to climb. This is where investors wish prices to come down.

Value of an Investment Diamond

What is value? we have to be very careful as some consider value to be price, which is not the case. Fancy color diamonds that are of investment grade have great value, without the element of price. Price is just the amount of money that the diamond is worth. Value can have an effect on price. If the diamond was once owned by a royal family, or a famous individual in the past, the diamond will have a greater value, and yes, eventually it’s price will also reflect that higher value.

Potential of Investment Diamonds

Some rare diamonds have a greater potential of increasing in price over time than some other diamonds. Pure color diamonds, and rare in size such as pink, blue, and red (and yellow to a lesser extent, simply due to the volume available for yellow diamonds). Over time, demand soars while supply remains constant or in some cases even decreases, which makes these rare diamonds increase in value more. People are willing to pay more for something so unique. Imagine being the only person on earth to own such a color/size diamond. How will that make you feel?

Conclusion

An investor would want to see prices go down when he is ready to acquire more unique and rare color diamonds. If prices are at their peak, an investor will be concerned of buying at the high, just because it might go down on a short term basis. Investors have to be able to make proper decisions, without being emotional. If demand goes up, and more wealth is created, it would make sense for the prices of fancy color diamonds to go up over a longer period of time. When acquiring a rare fancy color diamond for investment, our approach should remain that of a long term, at least 5 years. During this time, supply will further dwindle, while demand soars, increasing prices.

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