How good a friend is your diamond?

Got diamonds on your mind? Before you make the purchase, read on to know how the stones are valued, what factors influence prices and whether they have a good resale value.

See the Cs
The price of a diamond depends on a number of factors. The keys ones are shape — round, oval, square, heart shaped, pear shaped, marquise etc — the colour, size stated in terms of carats (ranging from 0.3-3.00 carat) and clarity of the stone. These are known as the ‘Four Cs’ on which a diamond is valued (cut, colour, carat and clarity).

The colour of the diamond is stated in quality ranging from D, E, F, up to O, wherein D is bright whitish diamond and O is toward pale yellow.

“The price of a diamond differs hugely between just two colour changes. The price difference between a G coloured diamond and an H colour is $1,000-1,500,” said an official at a diamond company, requesting anonymity.

Rates differ across retailers. “There is no standardisation and consumer index. Whatever the size be, there are many values to the same size,” said Anuj Rakyan, managing director of Ananya Jewels.

In 2000, the price of a one carat diamond of premium clarity was $15,100 in 2000. A similar stone would cost around $25,410 today.

C Vinod Hayagriv, chairman, All India Gems and Jewellery Federation, said, “Sometimes there is a good supply of one carat diamonds or sometimes a quarter carat ones. Depending on the production for the year and the demand for those diamonds the prices would go up or down.”

So, not just are there many variable deciding the price of diamonds, but there are also no specific standards.

Can you sell it back? 
According to Hayagriv, “The industry trend is that if a person is selling back the diamonds to the same person, they are able to get the same value if they want to exchange it for something else, depending on today’s sale price.”

Hayagriv said, “In case one is looking for cash in return for the jewellery, then there could be a deduction of 10-20% on current prices.”

Rakayan of Ananya Jewels said: “The cost of each piece of jewellery consists of gold, diamonds and labour. Generally, 10% is the gold, 70-75% is the diamond and the balance 15% is labour. If you come back to sell it, then the retailer will cut the labour cost, give the gold price according the weight and market price and the diamond will be bought at 80% of the invoice value.

Most jewellers say they offer a resale value of up to 80% of the amount the diamonds were bought at. “We have a buy-back policy across all our stores by deducting 20% of the price printed in the Rapport Price Index,” said Mehul Choksi, chairman and managing director of Gitanjali Gems.

That’s a problem. It means if you are in need of money and decide to sell your diamonds, around 75% of the cost of the ring or necklace (the diamonds) will not carry the value it was bought for. Solitaires which are certified will bring a higher resale value, but these are very expensive.

The value could be higher if you choose to exchange the diamond for jewellery rather than cash.

Certification & its costs
“The certification contains a picture of the diamonds, weights and the four Cs quoted on the certificate. The invoice too would have this information,” said Rajiv Popley, director of Popley Group, which runs a chain of jewellery stores.

He said: “We are associated with many certification labs, but Diamond and Gems Laboratory of America and International Gemological Institute certify majority, if looked at from jewellery point of view.”

Other labs that certify diamonds are Gemological Institute of India (GIA) and the High Diamond Council (HRD). There is a cost for certification, which is added to the cost of the stone.

“If one wants to have certification from GIA then you have to pay 5-6% higher as these are international labs and the jewellery has to be sent to them for certification. The Indian labs charge 4% for certification,” said the official with the diamond company.

Is the price right? 
More likely than not, the price of diamonds may not rise forever,
say Barry Nalebuff and Adam Brandenburger in their book Co-petition: A Revolution Mindset That Combines Competition and Cooperation. The reason is that while diamonds are perceived to be rare stones, they are not actually scarce. “People value diamonds highly because they perceive them to be scarce. They’re not, but that’s beside the point; it’s the perception of scarcity that counts. The perceived scarcity has made diamonds an ideal choice for engagement rings, but not without some help from a long running DeBeers advertising campaign,” they state in their book.

They also say: “It’s getting harder and harder to maintain scarcity of diamonds in the face of growing natural abundance”.
Diamond merchants told DNA Money the monopoly of De Beers is slowly diluting, making it impossible for the South African company to control diamond prices. De Beers used to control around 70-80% of the diamond production in the world. Not anymore.
“The company now sells only 40% of the gems produced,” says Hayagriv of All India Gems and Jewellery Federation. There is no price fixing now and it is an open market, say merchants.