When A Diamond Loses Its Virginity; The Importance Of The Secondary Market For Fancy Color Diamonds
The year 2019 just flew by in the auction arena without seeing any major and significant Fancy Color Diamonds. Only in October 2019 we saw the 10.64 carat, Fancy Vivid Pink which was sold for just under $20 million and in November we saw the 7.03 carat Fancy Deep Blue diamond by Moussaieff which was sold for $11.7 million. Even though we are already in May 2020, we are going through a unique and once in a 100 years event, The Corona Virus. No major auction took place, and they will be back by end of June, or early July.
Why have we not seen any such unique diamonds at auction? we can’t really say that there is no money out there! In the first four months of the year, some people have made a tremendous amount of money, both because stock market has gone down, and there is the ability to profit from a stock market plummet and because some companies now sell even more on the internet and their stock price has gone up, like Amazon.
The answer is not complicated. In fact, it is so simple, it can be explained in a single word; Rarity.
Why? The earth is no longer producing such rare rough diamonds. The majority of the blue diamonds in history came from the Cullinan mine in South Africa and before that from India. Pink diamonds came from the Argyle mine in Australia. Red diamonds came from Australia and before that from India. All the mines have been literally depleted. The Argyle Mine is closing later this year, which will include the red diamonds (India no longer produces red or blue diamonds). A few major blue rough diamonds that came out of the Cullinan mine are: The 39 carat rough that came out in 2007-2008. The 25.5 carat rough that came out in April 2013. The 29.6 carat rough that came out in January 2014. The 122.52 carat rough back in 2014, and an exceptional blue rough weighing 20.08 carat coming out in September 2019, 5 years apart. Another major blue diamond was mined in Botswana in May of 2018 and it weighed 41.11 carat. It was eventually revealed to the world as the 20.46 carat Okavango Blue polished diamond, a Fancy Deep blue with a VVS2 clarity. That’s about it! As for pinks, the larger pink diamonds came from the Williamson mine in Tanzania. It produced the 16.39 carat back in September 2014, another 23.16 in December 2015 and a 32.33 carat rough pink in March 2016. Since then, nothing!
The next generation of rare pink and blue diamond
There are 4 ways to name the next largest supply of unique and rare pink and blue diamonds in the world and they are ( in no importance of order): Used, Second Hand, Recycled and a more upscale name getting traction recently; Pre-Owned. Some retailers even refer to them as “gently used”. the last one made me laugh!
In the late 70’s, 80’ and even the 90’s when rare Fancy Color Diamonds were almost unknown to the majority of the global population, certain affluent and wealthy individuals were already “stockpiling” them into their safes for preservation of capital.
The next generation of rare Pink and Blue Diamonds will most likely come from inheritance, which will end up selling in the secondary market.
Where will they come from?
The majority of the buyers were wealthy families from the middle east, Japan and certain areas of the far east.
Back in mid 2018, a partnership between 3 very large and prominent diamond dealers ( 1 in New York, 1 in London/Monaco, and 1 in Israel), got together and acquired one of the largest private blue diamond collection in the world. It belonged to a Saudi royal family of which the owner passed away and the heirs wanted to sell the collection. At the time, it was the largest single transaction that ever took place. It was valued at $150 million and it involved about 37 blue diamonds, mainly Fancy Vivid Blue and Fancy Deep blue diamonds. The 37 blue diamonds were part of a larger collection and they were all set into very expensive and unique jewelry. All of them were above 1 carat in weight, and were some of the rarest on earth. When was the last time anybody has seen a 5 carat, Fancy Vivid Blue, Round diamond?
An even bigger collection is now being offered on the market. Another middle east royal family that has given a mandate to a prominent diamond dealer in New York (same one as in the above story) to help them sell their $2 Billion, yes, you read it correctly, $2 Billion worth of diamonds. The collection is a mix of colorless as well as Fancy Color Diamonds. The collection is currently “parked” in Europe, and diamonds are slowly going to GIA so that new and updated certificates can be issued. The collection is dated back to the 70’s and 80’s. I have personally seen some of the diamonds in the collection ,and they had amazing and rare colors and sizes. Some of them were already sold in recent auction at both Sotheby’s and Christie’s while others have sold privately.
The market continues to ask for ethically sourced diamonds. But what about the secondary market mentioned here? are the diamonds considered ethically sourced? can they be? Should the seller disclose that the diamond was previously owned? Should these pre-owned diamonds be priced any differently than those diamonds that are available for sale for the first time? I know of at least one company in the USA that has been offering pre-owned diamond rings for over 13 years now. They disclose that all their items offered are pre-owned.
If we sell pre-owned diamonds, should they be priced less, more, or the same as other diamonds that have never been owned by private individuals? if different, why? perhaps we can argue that pre-owned diamonds should be treated like wine; the older, the better. Since diamonds do not get used up (as they are the strongest material), why should their value be any different? maybe they should be priced higher, and be sold with story? there are plenty of people that sell their unwanted jewelry on the internet like Ebay.
Added Value as investment?
If we go back to the Blue diamond collection, did they lose value over time or increased? increased! did they lose any beauty while owned by others? absolutely not! so why not disclose their previous owners? why not have full disclosure for diamonds like most artwork does? we see many pieces of artwork sold at auction that discloses who the previous owner was, and sometimes going back up to the original painter. Why not treat diamonds with the same respect?
Over time, rare blue and pink diamonds have been increasing in value. Some years the increase was exponential, while some years it was not. Now that there will be a secondary market of supply, how will that affect prices? and the perceived value…? As rare as pink and blue diamonds are, what will happen if all of a sudden the full supply of the last 30 years re-appear on the market again, will that have a negative impact on their prices? some would argue that yes, since you are offering an item with full inventory for the last 30 years. Any expert of fancy color diamond may argue otherwise. Even if we offer rare blue and pink diamonds that have sold for the last 30 years, they will all sell rather quickly. There is simply not enough of them when we take demand into consideration. If we consider that over the last 25 years less than 160 diamonds in the Fancy Intense and Fancy Vivid Blue diamonds above 1 carat have been sold in auction, how fast can we sell them again on the market? their value will only increase over time; more than the yearly average of other assets, such as bonds and stock.
The FCRF ( The Fancy Color Research Foundation) has a fantastic tool called rarity. It is used to assess the rarity of certain Blue, Pink and larger Yellow diamonds according to detailed characteristics entered. I had a lot of fun entering various data points and see the result. Try it and let me know your thoughts.
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