Drivers for collectors and investors

The four main drivers for the purchase of gems for collectors and investors are listed below., The list includes a varying cross section of gemstones including unheated ruby, sapphire, emerald with no oil, fancy colour diamonds and large colourless diamonds as models but it is not exhaustive and can include other gemstones including Imperial Topaz, Demantoid Garnet and Paraiba Tourmaline.

Colour

For the investor, primary colours are essential. Pink and blue diamonds and type 11A colourless diamonds are preferable. The latter are pure carbon and are void of nitrogen atoms or any trace elements. Ensure ruby and sapphire are gem quality, natural and unheated and accompanied with a recognised Grading Report from Gubelin, GIA, SSEF and GRS. For the collector, the saturation of colour with an unusual display of optical properties, lustre and inclusions can be very important.

Rarity

Sources of pink or blue diamonds are not finite. The Argyle mine, a source for pinks and Fancy Red diamonds, will be exhausted within the next decade. There is a shortage of large rough ruby from Myanmar and today, the mining operatives are inserting significant sized large rough colourless diamonds to auction which are purchased by niche Retailers on behalf of clients. In addition the stronger saturation colours, Fancy Intense and Fancy Vivid diamonds are up for sale with no disclosure of the buyer. Rarity is very attractive for both investor and collector.

Resilience to adverse economic climate

Significant sized rare fancy coloured diamonds and unheated natural ruby, sapphire and emerald have not decreased in value, unlike colourless diamonds which can fluctuate dependent on size of diamond and market demand. Current global demand from Asia, Russia, North America and Europe quite simply over the last few years has abated, however, there will always be a supply for collectors and investors looking for an alternative asset class with a possible store of value.

Price discovery

The price and value of a gem is an essential factor as investors would always expect a lucrative exit strategy, whereas the collector would not be in a hurry to sell. The transparency of colourless diamond pricing is gauged with Rapnet and Rapaport pricing lists as well as estimates and hammer prices at auctions. Fancy colour diamonds and significant gemstones are not tied in with a globally priced market, unlike their natural colourless counterpart. This can be misleading for an investor as estimates can be so far away from realised pricing and offer no indication of buyer and seller premiums paid on top of hammer price.

Unheated Oval Burma Ruby

Courtesy Jan Goodman Co Source: GIA website

Kashmir Octagon Sapphire

Courtesy George C. Hartmann, Jr. Source:  GIA website

Important Information

  1. The diamond market in the United Kingdom is not regulated by the Financial Conduct Authority (FCA). However, there are collectors and investors who will buy into colourless and fancy colour diamonds and will need to perform their own due diligence. As a guide for the fancy colour market, collectors and investors will be governed by drivers which will include rarity, saturation of colour, carat weight, clarity and cut of diamond. Investors would expect a lucrative exit strategy and price discovery is critical in event an investor would like to sell a fancy colour diamond.
  2. The fancy colour diamond market has different variables governing value compared to the colourless diamond market which is governed by the 4C’s Colour, Clarity, Cut & Carat Weight of diamond which is a globally priced market. There are numerous suppliers of fancy colour diamonds worldwide who will sell at a wholesale prices plus vat but for purpose of exit strategy, an investor has limited choice to exit an investment other than approaching the auction houses for price discovery. The auction houses offer a transparent platform for the seller and will give an estimate of diamond or diamond ring as a banding of figures. The mid auction price will represent the open market value. However, for the investor, this can be misleading as estimates can be so far away from realised pricing and must take into account buyer and seller premiums to be paid on top of hammer price. Sellers fees can amount to 20% plus vat which would negate any benefit from the claimed investment profit.
© 2018 Graham Tom Consultancy