Diamonds Update

GIA Versus EGL Diamond Grading Differences

Whenever we have a client say they found a diamond priced much less somewhere else, the first question we ask is if they are comparing similar quality and GIA graded diamonds.  We try to point out to clients that EGL, IGI, HRD and other grading reports tend to be off 1 to 3 color grades and often a clarity grade compared to GIA grading.  I wrote a blog article about this several years ago at http://diamonds.blogs.com/diamonds_update/2008/09/learn-to-play-the-certification-game.html and we encounter these types of discrepancies everyday between the grading reports.

However, some clients just do not want to believe the truth and hope they will somehow find a diamond priced for 25% to 50% less than its actual value.  We have even had clients argue with us saying that they have found online opinions that the EGL and GIA grading is the same.  We can only say that our experience has been that every diamond we have seen that was graded by both laboratories has come back with the EGL grading significantly higher ratings.

We recently had a client who requested a search for a round diamond about 1.4-carat weight with at least G color and VVS2 clarity.  After providing him several lists of recommendations for GIA graded diamonds meeting his requirements, he asked if we had any non-certified diamonds that we would recommend.  We explained that we usually only recommend GIA graded diamonds and explained about the inaccurate grading that is common with other laboratories and referenced the blog article mentioned above.  A month later, he emailed saying he had purchased a diamond from another retailer and was sending it to the GIA Laboratory in Carlsbad, CA.  He said he was able to find a higher quality stone at a lower price than we had recommended to him.

Here are the specifications for the diamond he purchased:

Round, 1.50 carat, EGL-Intl cert, H color, VS2 clarity, depth 60.4%, table 57%, measurements 7.38 x 7.33 x 4.44 mm, Excellent polish, Excellent symmetry, Premium EGL cut grade, Slightly Thick girdle, Slight Blue fluorescence

I never did understand why he thought H VS2 was higher quality than the G VVS2 he required for our recommendations.

Here are the specifications for the same diamond when graded by the GIA:

Round, 1.50 carat, GIA cert, K color, SI1 clarity, depth 60.3%, table 58%, measurements 7.39 x 7.34 x 4.44 mm, Very Good polish, Fair symmetry, Good GIA cut grade, Very Thin to Thick girdle, Strong Blue fluorescence

In other words, the same diamond graded by both laboratories came with very different grading even though the laboratories claim to use the same grading standards.

	EGL-International	GIA	Difference
Color	H	K	3 grades
Clarity	VS2	SI1	1 grade
Polish	Excellent	Very Good	1 grade
Symmetry	Excellent	Fair	3 grades
Girdle	Slightly Thick	Very Thin to Thick	3 grades
Cut Grade	Premium	Good	3 grades
Fluorescence	Slight Blue	Strong Blue	2 grades

The bottom line is that when you are making a significant investment, you should want to know what you are purchasing.  The GIA is the most accurate and consistent of the diamond grading laboratories so is the best way to ensure the quality of your diamond purchase.  With other grading laboratories, you do not know what you are getting as evidenced in the example above.

Mickey Mouse Rules of Diamond Shopping

Anne brought home this cute figurine this weekend and we commented how much Mickey and Minnie reflect the emotions that occur when diamond shopping.  I thought this was a good opportunity to mention some of the diamond shopping rules that are illustrated by Mickey and Minnie.

1) Get input from the one who is going to be wearing the diamond ring.  Shopping together like Mickey and Minnie is a good way to communicate.  The most important piece of information is what shape she wants.  If a girl thinks she might have a proposal in her future, she should do some shopping and determine what shape she likes best on her finger.  A subtle comment when shopping can tell the guy what shape and save him a lot of worry and a possible expensive mistake.

2) If the guy is trying to keep the purchase a surprise, they might not know what type of mounting their girlfriend wants.  The reality is that she probably does not know yet.  Buying a mounting that she does not like or is not comfortable on her finger, can be a very expensive mistake so a good strategy when in doubt is to put the diamond in a simple mounting, propose, and let her help shop for the mounting.

3) A word of caution to guys and gals when shopping.  Guys, be careful and understand that just because a girl says something looks nice, does not mean she wants that on her finger.  Girls like to shop and often provide a commentary on their “sport.”  Not every comment about a ring or diamond should be taken as their ultimate decision.  Girls, be careful and understand that your boyfriend is looking for every clue he can get and will take you comments as fact.  If you say you really do not need a big diamond, he just might take you at your word.

4) While the beads of sweat on Mickey’s brow might be from apprehension of having to buy a diamond, the usual worry we see in shoppers is the fear of making a mistake.  The solution is to do some homework and learn about diamonds and ring.  Diamond source of Virginia has excellent education information and shopping advice on their website.  You do not have become a gemologist but you should learn the basics.

5) There is something between Mickey and Minnie that you should be wary of and that is the SALE sign.  Just because a jewelry store has a sale or the price shows a big discount, does not mean the item is a good value.  If you start with inflated prices, the amount of discount is meaningless.  Research online retailers to find out what the prices should be and do not pay more than you need to for a beautiful diamond.  This advice is especially pertinent if you are shopping out of town while on vacation, on a cruise, or at some “gem show.”  Impulse buying is the way shops get tourists to buy something without doing the research they normally would and then are stuck with their purchase when they go home.

6) While there is no way to know what documentation goes with the diamond ring Minnie is pointing to, it is unlikely they will find a GIA graded diamond in a jewelry store.  Do not confuse GIA grading, which means it has a Diamond Grading Report from the GIA Laboratory, with someone in the store having taken some classes at the GIA and writing an appraisal or giving an opinion on the quality.  Not all grading laboratories are as accurate as the GIA so if a retailer is trying to sell you EGL, IGI, or some other documented diamond, learn about the Certification Game they play.

7) When I see Mickey holding shopping bags, it reminds me that buying an engagement ring often comes at one of the most financially difficult times for a couple.  Often the couple is still paying off school loans, has been working but not that many years, and they have to start planning for a wedding and honeymoon as soon as they engaged.  Good financial planning and decision making means knowing your budget and seeking the best values possible.  The lowest price might not always be the best value, sometimes the cheap price is due to cheap quality.

8) Mickey and Minnie ended up in the office of Diamond Source of Virginia and if you are reading this article, you might be lucky to do the same.  If you have any questions, give us a call at 888-477-8385 and we will be happy to assist you.  We help clients all over the country every day, many of them who have already purchase somewhere else or are just starting shopping.  Since we do not own inventory and search for the best diamonds in the country for our clients, we can tell you the truth and give you unbiased advice.  Discover the better way to buy diamonds.

Learn to Play the Certification Game

It is hard to play the game if you do not know the rules and that is what most jewelry stores are counting on when they sell diamonds with EGL, IGI, HRD, or other “off brand” grading reports.  What is this game being played every day in jewelry stores across the country?

Within the industry, it is common knowledge that EGL, IGI, HRD and other laboratories are more generous in their grading than the GIA.  Unless a diamond shopper does extensive research, they probably have no clue that there are significant differences in grading accuracy between the diamond grading laboratories and you can be sure that the local jeweler is not telling them.  The shopper thinks that just because the official looking document says a diamond is H color, it must really be H color.  Wrong!

It is our experience that EGL-USA graded diamonds tend to be off one color grade compared to GIA grading and EGL-Israel grading is often off two color grades compared to GIA grading.  Other grading aspects like clarity, polish, symmetry and fluorescence can vary too but it is the color that impacts the value of the diamond and it is a factor that is hard for the consumer to see.

The basic fact is that the type of grading report should not affect the price of the diamond.  After all, the fees charged for grading only differ a few dollars between the laboratories.  Why then do wholesale prices vary greatly for diamonds with the same grading but different laboratories?  It is because the grading is not the same. 

How different can the grading be?  Look at the real life example we discovered recently.  Compare the two diamonds with the same weight below and tell me, which one do you think is more valuable?

Pear, 2.73 carat, EGL cert, D color, VS1 clarity, depth 66.1%, table 59%, measurements 11.92 x 7.38 x 4.88 mm, VG polish, VG symmetry, No fluorescence

Pear, 2.73 carat, GIA cert, F color, VS2 clarity, depth 66.0%, table 59%, measurements 11.92 x 7.41 x 4.89 mm, VG polish, G symmetry, No fluorescence

At first glance, it is obvious that the top diamond with two color grades higher and one clarity grade higher must be the more valuable diamond.  This is part right and part wrong.  The top diamond was priced more than $4000 higher on the wholesale market.  However, closer examination of the specifications plus the fact that both diamonds are owned by the same wholesaler, reveals that these are the same diamond.  As is often the case with larger diamonds, the diamond is sent to the GIA first to see what grading it will get.  Then it is sent to the EGL in the hopes of getting a higher call on the grading.  How can the same diamond have different values?  The answer is that prices are based on “perceived” value and the higher grades on the report imply greater value. 

Sometimes the shopper has to share some of the blame.  Some shoppers want a “deal” so bad, they throw logic out the door.  For example, may shoppers know an EGL graded diamond will be less expensive than a GIA graded diamond and suspect they are not the same quality, but want the “deal” and will overpay to get the higher letters on the grading report even though they suspect the diamond is not that quality.  For example, if the same diamond is color graded G by the EGL and color graded I by the GIA, the consumer can probably purchase the GIA I color for less than the EGL G color price.  However, jewelers are counting on shoppers wanting the “deal” and paying more for the EGL G because they want to believe they are getting more for less.

A local client recently purchase her 1.5 carat round I color, SI1 clarity diamond at a local jewelry store because their price was about the same as our price and they had been buying from that store for many years.  However, she purchased an EGL graded diamond instead of the GIA graded recommendations we provided.  While the price might have been about the same, the value was certainly different.

Here is a diamond we recommended:
RD, 1.53 carat, GIA cert, I color, SI1 clarity, price $9323, depth 61.5%, table 58%, measurements 7.35 x 7.42 x 4.54 mm, VG VG N
[Excellent GIA cut grade, Excellent HCA rating (1.2)]

Here is an EGL diamond with almost the same specifications and our price:
RD, 1.53 carat, EGL cert, I color, SI1 clarity, price $7763, depth 62.5%, table 59%, measurements 7.31 x 7.35 x 4.60 mm, EX EX N

This $1560 price difference means that the shopper actually paid much more than they needed to.  Since the EGL diamond is priced less than a GIA J color, you can expect it to be less than a J color.

Are all EGL graded diamonds off compared to GIA grading?  Not all of them but the ones your jeweler is showing you probably are.  If the prices are different than the GIA graded diamonds, you can expect the color grading is different. 

What about AGS graded diamonds?  We had an AGS I color diamond that was damaged so had it recut and sent it to the GIA for grading, where it came back with a J color grade.  Then consider that many AGS graded diamonds are priced on the wholesale market at about one color grade lower than similar GIA graded diamonds.  If the AGS graded diamonds are priced less than similar GIA diamonds, you should assume they are lower in color than their grading report indicates.

If diamonds with certifications are off this much in grading, you can only imagine what the uncertified diamonds are like that are being sold every day, especially when they are already set in a mounting.

Okay, now that you know more about the game that is being played, what are you and other shoppers going to do?  I would suggest you take the same strategy that we recommend to our clients.  Since the GIA is the most accurate in grading, stick with GIA graded diamonds when you are purchasing.  The price of the GIA graded diamond is going to reflect the quality you are buying, why take a chance with the other grading laboratories that can be off 1 to 3 color grades and maybe a clarity grade or two.  Consumers just do not have the tools or the training to accurately grade the stones themselves so it makes the most sense to rely on the most accurate grading laboratory for important diamond decision making.

RELATED ARTICLES

http://grading.pricescope.com/

http://www.diamondsourceva.com/Education/Certification/egl-certification.asp

Hearts On Fire Lawsuit Against Blue Nile

Hearts On Fire, the Boston based diamond jewelry company, filed a lawsuit against Blue Nile asserting that the Seattle based online retailer infringes the Hearts On Fire® trademark.  Blue Nile is accused of using “Hearts On Fire” as a search term in its pay-for-click and sponsored link advertising on search engines.  Moreover, Blue Nile is alleged to also use the “Hearts On Fire” phrase in the text of those links implying it sells Hearts On Fire® diamonds.

One of many companies in the 1990s who created brands based on the Hearts and Arrows patterns, Glenn Rothman renamed his company after his trademarked “Hearts On Fire” brand.  Within the diamond industry, Glenn is known for his marketing success as he has promoted the Hearts On Fire® name to be one of the top brand names.

Jewelers are desperate for ways to differentiate their diamonds from the price competition of online retailers and the Hearts On Fire brand has benefited.  The power of Rothman’s marketing skill is evident in that consumers are willing to pay more than double for the brand.  Ironically, the Hearts and Arrows pattern not a requirement for brilliance and sparkle, but is more of a by-product.

The Hearts and Arrows pattern is a result of diamond cut with great optical symmetry when viewed under a Hearts and Arrows scope.  Many of the exceptionally cut round diamonds display the Hearts and Arrows pattern so there is nothing unique about the brands, other than the marketing.  In fact, cubic zirconia can be cut to display the Hearts and Arrows pattern so there is nothing intrinsically valuable about the pattern other than the consumer perceptions from the marketing.

Clients of Diamond Source of Virginia are happy to find the majority of round diamonds sold by the company display the Hearts and Arrows pattern.  This is a result of only recommending round diamonds with at least Very Good GIA grades, Excellent Holloway Cut Adviser ratings, and at least Very Good proportional symmetry.  What makes Diamond Source of Virginia client even happier is that they do not have to pay extra for the Hearts and Arrows pattern.  They can get exceptional beauty for less than half the price of the brand name diamonds.

No doubt, the Hearts On Fire lawsuit against Blue Nile will generate considerable publicity for both companies.  Only time will tell how much diamond buyers will hear and learn about Hearts and Arrows patterns and if the increased awareness of generic Hearts and Arrows alternatives will lead to greater sales for Blue Nile and Diamond Source of Virginia.

Leo Ingwer Jewelry Designer

Online jewelry catalogs are a great place to get ring ideas when shopping for your engagement ring.  This is especially true if you have limited styles to view in local jewelry stores or just do not have the time to drive from store to store.

One of our favorite diamond ring and jewelry manufacturers, Leo Ingwer Inc., has an extensive selection of diamond engagement rings, anniversary rings, wedding bands, pendants, and necklaces displayed online.  Leo Ingwer is known for its workmanship, excellent quality and exceptional value.
 
While Leo Ingwer is a wholesale manufacturer and does not sell to the public, Diamond Source of Virginia can get you price quotes on item you see in online catalog.

Ladies Platinum Mountings
Ladies Engagement Rings
Ladies Remounts (ring except for center diamond)
Three Stone Rings
Diamond Wedding Rings
Antique Reproductions
Wedding Bands and Sets

You can also check out photos of some of the beautiful Leo Ingwer rings that clients have recently ordered from Diamond Source of Virginia.

Are Non-Certified Diamonds Cheaper?

 This week a local client told us that she was shopping at a jewelry store for diamond stud earrings.  She asked for certified diamonds and the jewelry storeowner told her not to get certified diamonds because they were so much more expensive.  He said it was his job to save her money and non-certified diamonds were the way to do that.

Here is what the jeweler forgot to tell the shopper.  The price difference between GIA graded diamonds and non-certified diamonds should only be the cost of getting the diamonds graded.  This is only about $50 to $100 for most diamonds and depends on the carat weight of the diamond.  Any remaining price difference can usually be attributed to the non-certified diamond being a different quality than the corresponding GIA graded diamond.  In other words, the true quality is not as advertised or there are attributes such as poor cut, laser drilling, fracture filling, or fluorescence that have not been disclosed.  Typically, it is the color and cut of the diamond that are lower because those tend to be harder for shoppers to identify under the intense jewelry store spotlights. 

Look at it from the jeweler’s perspective.  If they could price the diamonds a thousand dollars higher with a GIA grading report, they would.  Instead, they buy cheaper, lower quality diamonds and advertise them as being something better, or neglect to disclose all the characteristics of the diamond that impact value.  The jeweler is counting on the shopper wanting a “deal” rather than the truth.

If a client really wants to know the quality of the diamonds they are purchasing, we recommend they purchase a GIA grade diamond, which provides the most accurate description of color, clarity, cut, carat weight, measurements, fluorescence, and any treatments.

Laser Drilled Diamonds

One treatment to enhance the clarity appearance of a diamond is laser drilling, which consists of using a laser to bore a hole in a diamond.  The hole, resembling a wormhole, is used to reach a dark crystal so that acid can be injected to bleach the inclusion and make it a lighter color. 

Laser drill holes are usually easiest to see from the side of the diamond.  The “wormhole” extends from the surface in a straight line down to the target inclusion.  The hole on the surface can often be felt if explored with a sharp pick or needle.

Sometimes the laser drill hole is then fracture filled with a liquid glass-like material to make the hole less visible.  Fracture filling is also used in diamonds without laser drilling when it is injected into fractures that reach the surface (feathers).  Companies that perform fracture-filling market themselves as being better than their competitors are, based on the proprietary formulas they use for the filler substance.  Most fillers react to heat, light, and other conditions, thus changing color or becoming more visible over time.

It is critical that laser drilling be disclosed to the consumer, even though the Federal Trade Commission Guides for the Jewelry Industry do not require disclosure.  Therefore, it is up to the diamond suppliers (wholesalers and retailers) to ensure that this treatment is properly communicated, especially to the consumer.

While the purpose of laser drilling is to improve the appearance of the diamond, there is still much debate over how to price these diamonds.  Obviously, the biggest danger to the public is if they purchase a diamond that has been laser drilled without being informed of the treatment.  Most consumers do not inspect their diamonds under a microscope and are relying on the word of the retailer or on the report from a grading laboratory.  The best protection to avoid laser-drilled diamonds is to purchase GIA graded diamonds because the GIA always indicates on the Diamond Grading Report if a diamond has been laser drilled.  Laser drilled diamonds should be properly disclosed and sold at a lower price.  Since most knowledgeable diamond shoppers avoid laser-drilled diamonds, they become very difficult to resell.

The laser drilling is not to be confused with laser inscription, which is the etching of the certification number on the diamond for identification purposes.  The laser-drilling process actually bores a hole into the diamond, while laser inscribing only darkens a thin layer of carbon molecules on the surface of the diamond and does not damage the diamond.

Tourist Trap Diamond Shopping

I received the following email yesterday.

We bought princess cut diamond earrings in Aruba a year ago & came to discover through obtaining an appraisal here in the US that one of the diamonds is glass filled.  We went to the most reputable jeweler here in town & he recommended that we look at your website to learn more about glass filled diamonds.  During the course of the past year, we have tried unsuccessfully to get our money back.  When that did not work, we then said that our friends who go to Aruba every March would bring the earrings & exchange them for us.  That did not work either as the jeweler told them that for us to get the quality that we thought we were getting to begin with we would have to pay more money.  Our question to you is “is the value of the earrings less than what we bought them for”?  We have thought about selling them to someone here in the US but wonder if anyone would buy them knowing they are glass filled.  What is your advice? 

This is a classic example of what happens when tourist purchase diamonds at tourist locations.

1) While shops at tourist locations might be a good value for local, handmade items, diamonds are a completely different product.  Those tourist shops are purchasing them from the same cutters and wholesalers that source our diamonds.  The false assumption is that these tourist location retailers are somehow lower price.  The online diamond retailers in the United States have the most competitive market in the world.  Shoppers from South Africa, India, Australia, Russia, and Canada find diamonds are less expensive on the US retail market than in these countries that mine and cut diamonds.  The real deals are the low single digit margins on most diamonds at online retailers in the United States.

2) We recommend that diamond shoppers purchase GIA graded diamonds to ensure they know what quality of diamonds they are purchasing.  The GIA does not grade diamonds that are fracture-filled because that is a temporary process.  The GIA would identify any permanent diamond treatments on their Diamond Grading Report.

3) Tourist location retailers rely on impulse buyers for their business and they are shielded from the buyer’s remorse because it is so difficult for shoppers to return purchases they realize were not as advertised.  Buyer beware applies when you purchase outside the borders of the US because legal resource is very limited.  There is no Better Bureau, Chamber of Commerce, or local TV station available to uncover unlawful or unethical business practices.  The Aruba shoppers are likely in for a surprise if they think they will get a refund if they take the earrings back to Aruba.  The fine print on the sale probably only allows a store credit, if even that, and how wants to purchase from someone you already know does not practice good business ethics.

4) The deals that seem too good to be true while on vacation or even at the local jewelry store should raise a big red flag.  If the prices are lower than online retailers, that simply means the quality is not as advertised.  Tourist location retailers are not giving their goods away and typically have higher overhead than online retailers have.  This is especially true of tourist thinking they can find a good deal in the Diamond District of New York.

Because the shoppers in the Aruba story above did not know the quality of the diamonds they were buying, they probably paid much more for what they bought than they should have.  Now that they realize their mistake, their options are limited because most diamond shoppers are now well educated via the internet on how to get the best values when shopping for diamonds.  They will only get pennies on the dollar if they sell them to a jeweler or pawnshop, and they will find it difficult to find consumer who will buy them for anything close to what they paid if they disclose what they know about the diamonds.  Buyer beware also applies if you are considering buying from an individual.  You might be able to find a deal if the individual needs to sell, but it is only a “good deal” if the buyer knows exactly what they are purchasing, and the price is appropriate.

Round Diamond Price Increases

Diamond price changes vary greatly by carat weight, color and clarity.  This is especially true for the price increases we have seen in recent years.

The chart below (click chart for larger view) shows the total percentage increase from the start of 2005 to the start of 2008 for round diamonds with various color, clarity and carat weight combinations.  I have focused on colorless (D, E and F) diamonds but similar trends are true for G, H and I color diamonds.

The following observations reflect the information in the chart.

1) Four and five carat diamonds have significantly increased in price more than lower carat weights. The one and two carat weight diamonds have increased relatively little over the three-year period and in some cases have exhibited no price increase.

2) The VVS2 clarity grade has experienced the highest price increase across almost every carat weight and color grade combination. 

3) Diamonds with SI1 and SI2 clarity have shown considerably lower price increases, especially for the three, four and five-carat weight diamonds.

4) Diamonds with Internally Flawless clarity have lower price increases than diamonds with VVS and VS clarity grades.

5) Diamonds with F color have experienced higher price increases than E color, which are higher than D color.

For consumers who have purchased colorless diamonds with VS2 or higher clarity in the past, the price increases indicated that the value of their diamonds has increased significantly.  As a result, they should consider getting their insurance appraisals updated to reflect the current values of their diamonds.

For consumers ready to purchase and wondering about the “investment value” of their purchase, the colorless, diamonds with VVS and VS2 clarity would appear to have the greatest opportunity for future appreciation, assuming that recent history is indicative of future performance.

As the number of affluent diamond buyers worldwide increases and the production of large diamonds (3 carats and above) decreases, the price of larger cart weight, high clarity diamonds is projected to explode.  This trend is especially true in the case where the diamond is unique in the marketplace and consumers are bidding up prices.  When cutters and wholesalers have waiting lists for particular types of diamonds, they can ask and get almost any price they want for the diamond when it comes on the market.

What Are Best Investment Diamonds?

In previous blog articles, I have noted that diamond prices are projected to go up due to worldwide production diminishing while worldwide demand increases.  The last several years have already seen diamond prices move upward, especially for larger diamonds. 

With the increase in prices, an increased number of questions come from consumers concerning purchasing diamonds as an investment.  My first response in answering the question about diamonds as investments is to note that, like the stock market, there are no guarantees that prices will continue up.  That is what industry experts foresee but like other investments that have potential high rewards, there are always high risks.

Like any other investment, several components come into play to determine if it is a good investment.

• Can you purchase the investment with a low transaction fee?  In the case of buying diamonds, the transaction fee is the retailer’s margin.  A prudent stock investor would not think of paying a 50% transaction fee to purchase a stock, so the wise diamond buyer should seek a retailer with a very low price margin.
• Will the investment go up in value?  While there is no guarantee, large diamonds are expected to go up in value the next 5 to 7 years based on current forecasts of diamond production and demand.  These market forces are already in play and prices have been going up.
• Can you sell the investment when you need to and with a low transaction fee?  The typical consumer, who purchases a large diamond, must rely on a retailer to find a buyer for the diamond.  This is especially true if they are trying to get the maximum price for from the sale.  Finding another consumer willing to purchase the diamond, can take time and that is a risk if the seller needs the funds quickly.  Of course, the diamond can always be sold quickly to a wholesaler or retailer at a price lower than the market but that means a much greater transaction fee in terms of lost revenue potential.  If you pay a 25% fee to buy the diamond and a 25% fee to sell the diamond, the value of the diamond has to go up 50% to break even.

A common question we get is “what types of diamond makes the best investment”.  The answer to that question depends greatly on the amount the consumer wants to invest.  The potential price increases for diamonds varies with shape, carat weight, color and clarity (assuming similar cut, finish, fluorescence, and certification).  For the sake of argument, let us assume an unlimited investment amount and examine the type of diamond that has exhibited the greatest price increase in the last three years.

The following chart show the price increases for 3-carat, 4-carat, and 5-carat Round and Fancy Shaped diamonds with at least H color and VS2 clarity.  These categories have had the highest price increase from 2005 to 2008 (12/3/04 - 12/14/07).  It is a logical assumption that the types of diamonds that have shown the most increase the last three years will also be the types of diamonds going up in price in the next several years. Click chart to expand size of image.

Here are some of my observations based on information in the chart.

• While many consumers might think the D color, Internally Flawless diamond would have the highest appreciation; the chart shows that it is often lower than other possible combinations of color and clarity.  Keep in mind we are talking about percentage increases and not absolute dollar increases.  The D IF diamonds are the highest priced per carat but that is of little significance to an investor.  A wise investor does not buy the stock with the highest price per share, but looks for the greatest potential percentage increase in value.
• The chart indicates that VVS2 clarity is consistently the best performer regardless of shape, color and carat weight.
• The top performing combination of color and clarity was the F color, VVS2 clarity for four and five-carat weight ranges.
• Round diamonds have outperformed fancy shaped diamonds, but only by about 10% total over the three-year period.
• Four and five-carat diamonds outperformed three-carat diamonds by roughly 20% total over the three-year period.
• There was relatively little difference in price performance between the D, E, F, G and H color grades.  This is significant because there is a considerable price per carat difference due to color.  An investor with limited funds to invest would be better off getting at least four carats and target the VVS2 clarity with lower color than getting D color, IF clarity and a smaller carat weight for the same money.

In future articles, I will discuss the relative price performance for one, two, and three-carat diamonds, which are more representative of consumer purchases for engagements and anniversaries.  While these purchases tend to be gifts worn rather than buys for investment purposes, most buyers do have an interest in what past price increases might mean for the future.