Buying The Right Colors

Understanding coloured diamonds
 
Buying The Right Colors

Demand for coloured diamonds

Over the last decade, demand for coloured diamonds has increased considerably. This is due to a number of important factors. First and foremost, international investors and collectors have recognized their beauty, rarity and value. Coloured diamonds are the rarest gemstones in the world and collectors consider their beauty unsurpassed in the marketplace. In addition, very few asset classes offer the price stability, long-term appreciation, portability and privacy that coloured diamonds possess.

Until very recently an occasional rarity, coloured diamonds have become a staple, taking an increasing share of trade show and independent jeweller counter space. A recent Financial Times article suggested adding a pink diamond or a rare chameleon diamond to your hard asset portfolio. Many jewelers and dealers believe that demand is the real question because supply is finite.

Historically, coloured diamonds have been for collectors and investors because they hold their value. At the annual Basel show in Switzerland in 2003, a number of dealers began showing coloured diamonds for the first time. Today, few booths will not have a piece or two.

A growing trend in the jewellery market is retail buyers seeking coloured diamonds to add to their jewelry and estate holdings. Recently, the (NCDIA) in the US and Rio Tinto Mining in Australia sponsored a U.S. consumer survey. Chief among the findings: 58.8 per cent of respondents are interested in natural colour diamonds, with many reporting that they are likely to buy or own jewellery containing them, and that most of these purchases would be for themselves. However, there are still fairly low levels of consumer exposure to these diamonds, which means the growth potential is unprecedented.

For example, the growth of right hand ring sales and three stone ring sales in the United States has corresponded with a rise in demand for coloured diamonds because a number of these buyers are looking for second or third jewelry pieces with coloured diamonds incorporated in the design.

During the past five years, three-stone diamond jewelry sales growth has risen almost 35 percent, according to the Diamond Information Center.

The major factors for growth in investment demand for high-quality coloured diamonds are in place, underscored by the rising number of high net-worth individuals, especially in the Middle East, Asia and the Former Soviet Union.China's growing affluent classes is luring more people into jewelry stores, with diamond imports in China rising 116 % in the first six months of 2007. In China, about 40 % of women are getting married with diamond rings. Diamond demand is also experiencing strong increases in India and the Middle East, with sales in India rising 26 % last year and Dubais rough trade in diamonds rising 17 %.

There are fundamental supply restrictions in the diamond mining industry with limited production growth, signified by a lowering mineral reserve base compounded by limited exploration success and relatively high barriers to entry.

Inventories of rough diamonds are at historically low levels with a significant stockpile having been reduced to working capital levels over the past decade.

These factors have lead to the first diamond investment fund being offered in London this year, with over $400 million dollars expected to be raised in order to invest in rare coloured and colourless diamonds.

Demand for rough diamonds is expected to rise to almost $20 Billion in the next five years and mine construction isn't keeping pace with demand. Consumers last year spent $72 billion on diamonds, with the average retail ticket rising 9.1 percent. Retailers and auction houses have noted that coloured diamonds continue to be the highest growth area of the diamond market. Part of this growth has stemmed from sales on the internet, with Blue Nile leading the way by introducing a beautiful collection of coloured diamonds for sale in 2007.

François Curiel, Christie's International head of jewelry, agrees that Middle Eastern buyers are the biggest consumers of colored diamonds in today's market, followed by Asian collectors. "The market for coloured diamonds is as strong as it has ever been," he says. "In our Geneva jewelry sale in November, a fancy intense blue diamond, of 3.71 carats, that had been unsold, at $850,000 in New York in 2002, sold for $1.3 million. Good coloured diamonds are so scarce, that they fetch 10 times the price of a colorless D flawless stone. Plus there is a lot of money around looking for good jewelry." Furthermore, as the supply of diamonds continues to decrease, it is expected that the price of polished colourless and coloured diamonds will grow significantly over the next decade.

The market has already seen selected coloured diamonds selling for double and triple their reserve estimates at the major auction houses. Dealers are reporting that the price of pink, yellow, cognac and blue rough is up by at least 20 % over the last year. As fewer rare coloured diamonds appear on the market and as demand continues to accelerate, collectors who act now will position themselves to enjoy a robust period of growth in the coloured diamond market.