Diamond Investment: Clarity, Cut, And Color For Grade

Diamonds are a desirable investment commodity due to their durability, portability, and inflation-proof nature. However, not all diamonds are created equal, and only a small percentage of diamonds can be considered investment grade. These diamonds are distinguished by their rarity, demand, and exceptional characteristics, including carat weight, cut, colour, and clarity. The interplay between rarity and liquidity is crucial, as investment-grade diamonds must possess both a high degree of rarity and relative ease of purchase and sale. The most valuable diamonds are those polished to the highest standards, with excellent cut, polish, symmetry, and fluorescence, resulting in superior light performance and visual appeal.

The 4Cs: carat, colour, clarity and cut

Carat

Carat refers to the weight of the diamond, with one carat equalling 200 milligrams or 0.2 grams. Larger diamonds are rarer and more valuable, and the value of a diamond increases exponentially, not linearly, as carat weight increases.

Colour

Colour evaluates how colourless, near-colourless, or yellow-brown tinted a diamond is on a scale of D-Z. The more yellow/brown the tint, the less the sparkle of the diamond, as light performance/reflection is reduced.

Clarity

Clarity evaluates a diamond's freedom from internal and external clarity characteristics, or flaws/imperfections, known as inclusions. The fewer the inclusions, the better the clarity.

Cut

Cut evaluates a diamond's craftsmanship and quality of light behaviour. The cut is the biggest factor that plays into how brilliant and beautiful a diamond is. The better the cut, the more value the diamond has.

Rarity and demand

The rarer an item, the more precious and valuable it becomes. However, not all diamonds can be considered investment diamonds, which are those that will maintain and grow in value over time. The majority of diamonds on the market, particularly the familiar colourless diamonds seen in jewellery stores, are actually quite common. This holds true even in the case of very large, top-quality and top-price colourless diamonds. The reality is, there are many such stones on the market, making it difficult to realise full market value when re-selling.

Investment-grade diamonds must be of a degree of rarity that holds an intrinsic value, and of a category with robust demand to ensure an equally robust resale market when it comes to selling in the future. In other words, there must be a balance between rarity and liquidity – diamonds that benefit from their degree of rarity while still offering relative ease of purchase and sale.

Demand for diamonds has been solid, especially in the US and China, which has kept prices high. The US accounts for over half of the world's demand for polished diamonds and in 2022, the global diamond jewellery market value was approximately 86.5 billion US dollars.

Diamonds are the hardest material found on Earth and are highly valued as gemstones. They are also highly utilitarian, especially as a material for cutting and grinding tools due to their extreme hardness. However, diamonds are not as rare as their high price implies. Their rarity was exaggerated by the De Beers Corporation, which controlled the market for several decades, carefully releasing only enough rough diamonds to satisfy demand and continually adjusting the degree of rough diamond availability. This reinforced the perception of diamonds' rarity and escalated prices.

Big, flawless white diamonds are less common, and the discovery of diamonds in other parts of Africa and South America allowed De Beers to gain control of the rough diamond supply. However, in the last two decades of the 20th century, satellite technology, originally designed to find likely oil reserves, also showed the geology likely to hold diamonds, and new discoveries began to multiply. Australia became one of the first developed nations to discover major diamond resources. De Beers made a deal with them to distribute all the rough, except for the very rare pink diamonds. In 1996, Australia ended its arrangement with De Beers.

Synthetic diamonds have also been available for many years, and due to decreasing production costs and declining retail prices, lab-grown diamond producers are increasingly favouring industrial applications over consumer sales. However, lab-grown diamonds are also increasingly being used in jewellery as an ethical and less expensive alternative to mined diamonds.

Liquidity

Diamonds that are used globally in engagement rings, typically those that are colourless or fancy yellow, are considered highly liquid. Engagement rings make up about half of all diamond transactions worldwide, making diamonds of this variety more desirable and easier to sell. These diamonds are also more likely to be resold at auctions, which can result in substantial profits.

The size of a diamond also plays a significant role in its liquidity. Diamonds between 0.5 and 2 carats are the most liquid, as they are the most common size for engagement rings. However, diamonds larger than 2 carats have greater potential for appreciation but may be more challenging to sell.

The rarity of a diamond can impact its liquidity as well. While rare diamonds are more valuable, they may be harder to sell if they are too unique or special. Therefore, a balance between rarity and liquidity is essential.

Additionally, the presence of a third-party diamond assessment certificate can increase a diamond's liquidity. This certificate provides proof of the diamond's quality and characteristics, making it more attractive to potential buyers.

Overall, the liquidity of an investment-grade diamond depends on a combination of factors, including its colour, size, purity, demand, and the presence of a certificate. These factors collectively influence the ease with which a diamond can be bought or sold in the market.

Certification

The Gemological Institute of America (GIA) is the most highly recognised certification organisation in the industry. Their grading system, which includes categories such as Triple Excellent, Excellent, Very Good, Good, Fair, and Poor, sets the standard for diamond quality. GIA certificates are highly sought after by investors as they provide detailed information about the diamond's attributes, including blemishes and inclusions. This level of transparency helps investors make informed decisions and increases their trust in the diamond's value.

While the GIA is the preferred choice for certification, there are other reputable organisations that offer similar services. These include the World Jewellery Confederation (CIBJO) and independent gem labs, such as those that have emerged since the dismantling of the De Beers cartel in 2001. These labs use advanced technology to identify synthetic diamonds and provide specific grading reports for laboratory-grown diamonds.

Obtaining a certificate from a respected organisation like the GIA is crucial for investors. It not only enhances the diamond's appreciation potential but also ensures that the buyer is investing in a natural, high-quality diamond. This certification serves as a safeguard against synthetic or treated diamonds, providing confidence in the authenticity and characteristics of the stone.

In addition to the GIA certificate, investors should also be aware of the origin and ethical sourcing of the diamond. Reputable sellers will provide documentation that traces the diamond's journey from mine to market, ensuring it has been sourced responsibly and free from conflict. This documentation adds to the diamond's overall certification and further enhances its value and marketability.

In summary, certification plays a vital role in the diamond investment process. It provides transparency, assures quality, and increases the potential for value appreciation. The GIA certificate is considered the gold standard in the industry, but other reputable organisations also offer valuable services. Investors should prioritise certification when considering diamond investments, as it provides the necessary assurance and peace of mind.

Light performance

A diamond's cut, natural characteristics, clarity grade, and colour grade influence its light performance. The cut is the most important factor, as it determines how light reflects out of the diamond's face, minimising leakage while maximising brilliance, fire, and scintillation.

The key to light performance is:

• Intense white light emitting from the diamond
• Vivid flares of striking colours as light refracts through the diamond, creating a scintillation of rainbow colours
• Striking flashes of light bursting out from the diamond surface as the direction of light reflection changes
• The distribution of light through the diamond, which is affected by the quality of cut and the number and size of natural inclusions.

The Sarine Light Performance report evaluates and appreciates every facet of a diamond's shine, from its brilliance to its fire, sparkle, and light symmetry. It is the optimal way to bring a diamond's beauty to life and create a deeper bond between consumers and their gems.

Frequently asked questions