With Israeli natural colored diamond firm Leibish & Co. securing 26 of the 65 diamonds offered for sale at the Argyle Pink Diamond Tender in early November, the spotlight has been placed on the Israeli colored stone sector. Leibish & Co. was easily the largest purchaser of colored stones at the prestigious annual sale. The winning bids were made in a strategic partnership with Kunming Trading Co, Leibish said.
The purchases this year were far beyond the number of colored diamonds it has secured at Argyle tenders in recent years. Leibish & Co. won two stones at the tender in 2014, seven at the 2013 tender, 17 in 2012, six in 2011 and 2010, and just one in 2009.
"You need to fully understand the market prices and the value these stones possess,” said Leibish & Co.'s chief diamond buyer, Shmulik Polnauer. “You have only a short time to assess each of the stones and all the pressure of competing against all the top diamond buyers that exist. Dealing with fancy color diamonds day in and day out, I know the trends, what's hot and what people are after. I bid on behalf of some of our best clients, and also because I know how many others would kill to own just one of these magical stones."
In explanation for how the company managed to win so many of the diamonds, Polnauer said simply that he had to bid high, but not too high. “The highest bid wins, so I need to adequately assess the market and not bid too high, in order to ensure my customers the confidence that they are buying the goods at an excellent price that will enable them to reap the benefits down the line."
Despite trading conditions generally in the Israeli diamond industry in the second half of 2015 that were proving challenging, the colored diamond business remains something of a bright spot. That is because prices of colored stones during the past decade and more have proven to be a successful investment.
Etti Mund, of Hershkovits Diamonds in the Israel Diamond Exchange, said that trading in colored diamonds, as with their white counterparts, has slowed down in recent months. Investing in a "piece of masterwork" was one of the main selling points in marketing colored diamonds, she said. "If you look at the prices of colored diamonds over the past 10 and 20 years, you can clearly see that not only have they risen, but that they have really soared."
Colored diamonds account for just 1 percent of the entire diamond market. Some industry observers estimate that there is just one carat of colored diamonds for every 100,000 carats of white stones. And if that was not enough to make colored diamond prices continuously soar higher, supply is falling while demand, particularly from collectors and investors, is rising.
Given that colored diamonds are so much rarer than white diamonds, they naturally cost more than their transparent counterparts. That also means that factors affecting diamond prices and sales are different than those for the white diamond market. Even though sales of colored diamonds at auctions are not representative of the overall market since the gems sold there are for the ultra-wealthy, they nevertheless point as well to the rising demand for colored stones.
"On the one hand, prices have risen sharply as with other non-colored diamonds," said Mund. "But on the other hand, demand is mainly seen for certain sizes and colors since their rarity means that prices will necessarily be high so there is a limit to what even wealthy consumers will pay."
Indeed, the colored diamond market is such a niche sector that the number of specialists is very small, according to one colored diamond manufacturer. "I would say that there are very few people overall in Israel who have deep experience in colored diamonds," he said. "And there are very few polishers who have the experience to work with such diamonds."
Investment bankers, financial institutions, and business analysts who have investigated colored diamonds as an investment class are often surprised by their results, said Polnauer. "So much so that in today's versatile market specific stones are considered by many as one of the strongest investment opportunities around. Colored diamonds exhibit investment characteristics that other asset classes can only dream about emulating."
Among the advantages that fancy color diamonds present are that they are internationally recognized, well established goods that have a long history of being collected and traded for hundreds of years. In addition: "Diamonds are small, they weigh next to nothing and they are extremely portable. Therefore, large amounts can easily be transported and concealed in emergency situations. Your entire portfolio can be stored in your pocket, set in a piece of jewelry, or secured in a safe deposit box," said an Israeli dealer.
Meanwhile, Leibish adds that in investment terms: "Even just a little research proves that over the past 30 years, the price appreciation of natural fancy colored diamonds has dominated the market. Auctions results prove the strength of colored diamonds in today's market, not to mention that they have repeatedly broken auction house records for the highest price per carat ever paid at auction for a diamond or jewel."
In addition, Leibish & Co adds, fancy color diamonds retain their value and beauty, they are durable, are extremely rare, and are a highly private asset – as well as being beautiful and wearable.
Among the best-known sources of blue stones is Petra Diamonds' Cullinan mine in South Africa, while rare pink diamonds most usually come from the Rio Tinto Argyle operation in Western Australia. However, both of these mines are depleting, and the supply of rare diamonds is declining, which helps make them even more attractive as an investment.
Colored diamonds received a further boost in early November when a 16.08-carat cushion-shaped fancy pink diamond was bought for $28,523,925 at Christie’s in Geneva setting a new world auction record for any pink diamond ever offered at auction. The following day, Sotheby’s sold a cushion shape, 12.03-carat, fancy vivid blue, IF diamond for $48.5 million, or $4 million per carat, setting a new record for any diamond, or jewel, sold at auction.
"What makes colored diamonds so popular and leads people to pay such high prices for them?" asks a diamond dealer rhetorically. "There are many reasons, but perhaps the most important is that, unlike transparent diamonds, color gives warmth and character. It makes the gem even more irresistible. In addition to that, as with precious gemstones, jewelry set with colored stones can be more effectively worn in a fashion sense. The right color of clothing can be set effectively with colored diamonds."
The investment opportunity provided by colored diamonds is clear against the background of a supply shortage in the coming years due to rising demand from China and the Far East. "If we see that collectors and investors are looking at white diamonds as an investment for the future due to the shortfall that we know is coming, then how much more are colored diamonds a clear investment prospect given their extraordinary rarity," said a trader at the Israel Diamond Exchange.
Indeed, pink diamonds, since being launched onto the jewelry industry more than 30 years ago, have seen their value almost double every five years. High-profile purchases by celebrities of such diamonds has boosted demand further. These include the purchase by actor Ben Affleck in 2003 of a six-carat pink diamond ring worth a reported $1.2 million which he gave to then-fiancée Jennifer Lopez.
If pink diamonds are rare, then blue diamonds define an even greater degree of rarity, and thus have never seen a fall in value. Indeed, many of them have been sold a number of times, setting new records with every transaction. Among the most famous examples is the 35.5-carat Wittelsbach diamond for which Laurence Graff paid $24 million. He recut the diamond to remove imperfections, and then sold the Wittelsbach Graff for an undisclosed amount.
As with Graff's purchase of the Graff Pink diamond, and the record prices regularly being recorded at major auctions by Sotheby's, Christie's, and other auctioneers in the past two years, there does not appear to be a pricelist to work from. "At that level, it is about contacts," said a diamantaire. "If a high-level jeweler sees a diamond that he knows will fit the requirements of a certain client, then he has no problem in bidding up the price to extraordinary levels. The pink diamond that Graff bought was predicted to be sold for around $1 million per carat. Paying almost twice that amount means that the buyer presumably has a specific client in mind," he added.
Colored diamonds are bought as a long-term investment, meaning they are kept out of the market for lengthy periods. That in itself makes them even rarer, ensuring that the diamonds, when they are put up for sale – sometimes only once in 20 years – will command extraordinarily high prices. "We are talking about portable, wearable, fashionable, high-profile forms of wealth," said a dealer. "It's not like gold or cash that is under lock and key in a bank vault – although many diamonds are similarly locked away – they are worn for pleasure as well as being an investment."
That inevitably means that consumers who, nonetheless, are interested in acquiring colored diamonds need to start down the scale with brown and yellow diamonds.
The huge amounts paid for colored diamonds also points to another reason for their meteoric rise in price. Despite the advertising and promotional work done by diamond producers and other elements of the pipeline over the years to counter the claims by some that diamonds are a commodity, there is nonetheless a feeling that white diamonds are very similar and a mass market exists for them, said a dealer.
"You can buy a diamond ring or bracelet or necklace just about anywhere in the world where the diamond cuts are similar and the diamonds look alike. Compare that with colored diamonds which are so rare. There is no way you could class them as a category. Bear in mind that the wealthy always want something that others do not have, and rare colored diamonds fit the bill.
"There are diamantaires who have gone into the niche market for colored diamonds because they see that they are able to distinguish their goods from the rest of the market. That makes good business sense, although it also means you have to have an exceptional understanding of the market. They can also offer items that fit in with a trend of recent years among consumers, along with the movement for environmentally conscious and fair trade goods, to acquire "natural" goods. "What can be more 'natural' than a colored diamond? A certain color diamond can fit in with consumers' personal favorites and play to their emotions."
One colored diamond expert described the market as being rather new, since yellow stones were not considered to be more valuable than Cape diamonds up to 10-15 years. "In recent years, their value has gone up, particularly due to their scarcity."
He says it is vital that a dealer in colored stones knows the sector inside out. "You have to know the business very well to be able to place a price on a stone," he explained. "A poor hue can reduce the price of a diamond by 50-70 percent. You need a well-trained eye to see the imperfections in the stone because if they are missed you can get it very wrong.
"The risk involved in colored diamonds is much higher than for white diamonds. A colored diamond can sell for $10,000 per carat or $1 million per carat. Is the stone going to turn brownish? What is written on the certificate? One prefers straight descriptions on the certificate, such as 'fancy pink', and not something like 'orangey-pink' since that can affect the price tremendously.
"If the rough stone is not a straight color, then you need an extremely experienced and trained eye to understand it and its potential." As for setting the price of the colored diamond, that is determined by the quality and scarcity of such goods, he said. "A pricelist has no relevance because there are not that many colored diamonds available. The price of pink and blue diamonds is set by auctions, while the price of yellow diamonds is according to the quality of the goods and what is available on the market," he added.
Clearly, the colored diamond market has advantages that regular transparent, or white, diamonds, cannot match from a fashion point of view which also almost guarantees strong annual rises in their value. And international auction also helps to attract global attention to colored diamonds. However, it should be borne in mind that those diamonds are only for the extremely wealthy and have very little to do with the general diamond buying public which is usually searching for an item of diamond jewelry set with one carat of white diamonds – and often much less.
By our Israel correspondent Abraham Dayan
