Wednesday, January 25, 2012
Strengthening Diamond Prices Lead To Increase in Demand …And To Costly Mistakes Made by Consumers by Antoinette Matlins, Gemologist-Consultant and author of award-winning books, including Diamonds: The Antoinette Matlins Buying Guide (Gemstone Press)
Those seeking a sparkling diamond may be surprised to find that prices for fine diamonds have risen significantly over the past year, and there is no sign of diamond prices softening for stones weighing one-carat or more, in rare qualities. Most experts agree that prices will continue to strengthen in the foreseeable future, as wealth continues to spread to more people globally, especially in China and Southeast Asia. Sales of high-quality diamonds to Asia are already much higher than ever before, creating a scarcity of fine diamonds in other parts of the world.
As scarcity and prices increase, however, people not only start looking at buying diamonds, but they begin to pay more attention to comparative shopping and seeking the best price. This is where unknowledgeable, and unsuspecting, buyers may make serious mistakes, and the diamond they buy may quickly lose its sparkle!
Most people about to purchase a fine diamond have heard of "the 4Cs"—
Color: Graded on an alphabetical scale, beginning with the letter D – the rarest and truly colorless, like crystal clear water – thorugh the letter "Z" – with each letter indicating a progressively more visible tint of yellow or brown
Clarity: The presence or absence of inclusions (internal characteristics that formed within the diamond as it was being created in the earth's crust) or blemishes (minor surface characteristics that may also be removable by re-cutting). There are 11 grades on the GIA clarity grading system: FL (flawless); IF (internally flawless); VVS1 (very, very small inclusions, first degree); VVS 2 (very, very small, 2nd degree); VS1 (very small, 1st degree); VS2 (very small, 2nd degree); SI1 (small, 1st degree); SI2 (small, 2nd degree); I-1, I-2, I-3 (imperfections to the 1st, 2nd, or 3rd degree). There is no such thing as a truly "flawless" diamond, but if nothing is seen at 10-power magnification, a diamond will be graded Flawless or Internally Flawless.
Cutting: The shaping of the rough diamond into a polished gem. Regardless of the shape, the cut of any diamond is evaluated based on the precision that goes into the cutting, including the proportioning, symmetry, polish and many other factors. This is what determines how brilliant, fiery and lively a diamond will appear.
Carat: The weight of the stone. Often mistaken for "size" (since round diamonds are cut to such precise proportions, a 1-carat stone is always approximately 6.5 millimeters in diameter; a 2-carat, 8.2 millimeters, and so on, so a "size" is associated with diamonds of a particular weight). The carat weight has a dramatic impact on value, and price "per carat" goes up as the weight goes up.
While each of the 4Cs has an impact on determining how rare a diamond is, and thus, its relative value, most consumers – along with many jewelers and diamond sales people – have only a superficial knowledge of each of these factors, and lack the experience and in-depth knowledge to understand their impact on the beauty and value of a specific stone. It is impossible to make a sound buying decision without seeing the gem being considered, and when more than one diamond is under consideration, seeing them side-by-side is essential. In today's world it is also valuable to have guidance from an expert who can explain the differences and their impact on the stone's beauty, desirability, and value.
While space here is too limited to provide in-depth explanations of the 4Cs, I'd like to offer a few insights that I think a serious buyer needs to know to begin to better grasp the complexity involved in diamond grading, and why you need to work with someone knowledgeable. I will begin with the least understood factor: "cut."
Most people don't understand what is meant when we talk about the "cut." When experts speak about cut, we are not referring to the "shape" -- which is largely a personal choice -- but rather, to everything involved in creating the finished diamond from the original rough diamond. The cutting -- the proportioning of the top to the bottom, the size of the large, flat facet on the top of the stone, the angles and shapes of each tiny facet placed around the diamond, along with other factors -- is what creates the stone's brilliance and fire. Differences in cutting alone affect value by 40% or more. Even more important, while diamond is the hardest natural substance known, it is also brittle, and cutting "faults" can make some diamonds more vulnerable to being damaged -- chipped, nicked, or fractured -- while being worn. For example, buying a diamond that has been cut with an extremely thin edge at the point where the top meets the bottom of the stone (this "edge" is called the "girdle") could be risky since a sharp knock to the edge might result in a chip.
Color and clarity are also often misunderstood. It's important to understand that a color "grade" falls within a range and a clarity "grade" is based on a combination of factors, so you can have two diamonds with reports indicating they have "the same" color and/or "the same" clarity grade, but which are actually not the same at all. There may be difference between the two – regardless of their having the "same" grade on a lab report –that can significantly affect the price. While an expert can examine two diamonds that may appear to be the same quality based on grades shown on a report, and see the differences that affect price, someone who in not an expert will not see these differences or understand their impact on value. When considering diamonds from more than one seller, and comparing 2 stones with "the same grades," unless each stone is seen and carefully examined by an expert, and assuming the reports are accurate, you can't determine whether which seller is giving you the best value…the cheaper stone may not be as good a "value" or as wise a choice as the more expensive stone.
For example, let's take two diamonds with a color grade of "E." One of these E-color stones might be at the high end of the range, closer to the rarer D-color, while another may be closer to the less rare F-color. The cost of the "high" E-color will be more than that of the "lower" E-color. So each seller may giving you the "same" value, the cost difference simply reflecting the actual quality difference – one being a "better" color than the other.
The same can be said for diamonds with "the same" clarity grade. The clarity grade is a cumulative grade that takes into consideration many things -- how many "inclusions" there are, what type of inclusions are in the stone (crystal, fracture, needle, etc), their color, their location, and whether or not they affect the stone's durability. So here again, you can have two diamonds with the same grade but which are quite different from one another; one might have fewer inclusions, but they might be larger, black in color, and located in the center of the diamond where they can be seen with the eye alone, while the other may have smaller, white inclusions, located where they are much more difficult to see. Or one may be essentially "flawless" except for one internal characteristic – a crack that puts the stone at risk of damage. And so on. While the "grade" may be the same because it is a "composite" grade that takes into consideration everything in the stone, the cost will not be the same; differences among stones with "the same" clarity grade affect a stone's value.
Carat weight is fairly straightforward, and can be easily checked if the stone is not mounted in jewelry, but when mounted, it is not so straightforward. As mentioned, value is affected by the weight, and the cost per carat increases exponentially at each carat mark; a one carat diamond is more than twice as much as a ½ carat diamond; a 2-carat diamond can easily cost more than 4 times the cost of a one-carat stone. For example, a round diamond weighing one-carat might sell for $12,000 per carat x 1 = $12,000; a 2-carat stone of the same quality would sell for $25,000 per carat x 2 = $50,000! And so it is with each carat. However, if a diamond has been re-cut since the GIA report was issued, and dropped beneath the weight shown on the report, its value may drop dramatically. For example, if a jeweler had sold a 1.01 carat diamond and the owner damaged it and had it re-cut, following which the weight was 0.99 carats – which is under the one-carat mark, the loss would not be just a couple hundred dollars for losing 2/100s of a carat in weight, but 10x that amount. The loss in value would be $2,000 because the cost-per-carat of a stone weighing between 0.90-0.99 carats is only $10,000 per carat rather than $12,000 per carat! But the owner still has a lab report that says the diamond weighs 1.01 carat…and it is unlikely anyone will get a new GIA report.
The bottom line is that many diamond buyers today have been led to believe that as long as the diamond has a diamond grading report from a respected lab such as GIA, they don't have to worry because they will have the exact weight, color-grade and clarity grade and so it's just a matter of finding which seller is offering "the same quality" at the best price. This is a myth and will lead to costly mistakes.
It is essential to understand that you cannot rely on a lab report alone. To underscore this point, let me share with you an experience I recently had while searching for a diamond for one of my own clients. I learned about 2 diamonds that were almost identical according to the GIA reports. One, however, was significantly cheaper than the other. Nonetheless, even though I knew there must be a reason, I decided to examine both stones because the cheaper stone might have been OK, depending upon the reason(s) for the cost difference. I examined the cheaper stone first. Despite it having the "same" clarity grade (VS2), it had a crack that extended into an "extremely thin" edge (the edge or perimeter of a stone is called the "girdle"). An extremely thin girdle alone can be cause for concern if it extends for any distance around the stone, and in this stone the extremely thin girdle extended almost 1/3 of the way around one end of the stone. Diamond is the hardest natural substance, but it is also brittle and a thin edge can be easily nicked or chipped. So in this case, the extremely thin girdle at one end would have been a serious fault on its own. But this wasn't all; the presence of the crack that was present within the extremely thin part of the girdle made it far more likely this stone could be damaged. This stone was cheaper because it had a very high probability of being seriously damaged from a sharp blow! So even though it received a very good clarity grade (because it had almost nothing else inside the stone), it was not a "good stone"! Someone who didn't examine it carefully might have thought they were getting a bargain, when this is clearly not the case.
In addition to understanding that laboratory reports tell only part of the story, you must also understand that there are many counterfeit GIA reports, and equally important, a diamond can be damaged or altered after a report was issued.
I advise anyone seeking a diamond today to try to find a jeweler who is a "gemologist" skilled at grading diamonds, or a gemologist-consultant. Not only will they have the skills to double-check any diamond accompanied by any laboratory report, and confirm that the quality of the stone matches what is on the report, but they will also be able to accurately grade diamonds not accompanied by GIA reports, including smaller diamonds used as accent stones in rings and other jewelry settings. They can also help you understand differences between stones you may be considering, so that your choice is based on all the facts.
It is equally important to buy from someone you can locate should you discover that anything is wrong. This may be a problem when buying from internet vendors unless you can make arrangements to verify the facts, as recommended below, before paying for the diamond. If not, don't purchase from an internet vendor.
Buying fine diamonds should be fun and exciting, and when purchased from knowledgeable, reputable sources, this is usually the case. As you've seen, it's not as simple as just "having a lab report" and comparing prices based on grades on the report.
No matter who the seller is, I always recommend that buyers: 1) Make sure the seller is able and willing to give you the specific facts related to the quality of the stone, the 4Cs – color, clarity, carat weight, cutting grade, and to ask explicitly if the stone has been treated in any way and whether or not there anything about his stone that would make it more prone to damage; 2) Make sure the seller puts all representations about the diamond, in writing, on the sales receipt; 3) Verify the facts with an independent gemologist-appraiser who holds respected credentials (visit one of these websites to find someone reliable: www.appraisers.org; www.accreditedgemologists.org; www.americangemsociety.org).
The last step is the most important step. Never make the mistake of assuming that if the seller is willing to put everything "in writing" that they "must be telling the truth" and therefore not bother to take this last step—some of the most unscrupulous jewelers have been in business for many years because they understand they can put virtually anything in writing because most people never check it out! Only by finding someone with the "right" credentials and taking the time to have them verify the facts, will you know whether or not the seller was reliable. NOTE: there are many unscrupulous appraisers working in collusion with unscrupulous jewelers, especially in "wholesale diamond districts" around the world. This is why it is essential to seek someone with a respected certification.
If everything checks out, you'll enjoy your purchase for years to come. If not, you'll have documentation that will enable you to get your money back, regardless of store policy (If the facts have been misrepresented, the law requires the seller to refund your money.)
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