What do you see when you look at a diamond?
Most people will tell you it is a valuable piece of gem owing its value due to its rarity. Others will see it as a romantic binding stone. The truth is, it’s not really that valuable (it’s being assigned an artificial value) and it’s not rare either, but for as long as people believe this myth (and for as long as people are getting married and divorced), it creates an opportunity for investment.
Until the late 19th century, diamonds were found only in a few riverbeds in India and in the jungles of Brazil. In fact, the entire world production of gem diamonds amounted to a few pounds a year. Along came South Africa and started scooping them out by the tons. This created a problem; all of a sudden this previous gem faced being demoted to just a semi-precious gem (due to its high availability) which obviously placed the financiers, who invested money in mining diamonds, in danger.
The diamond supply was quickly limited in order to maintain its status as a rare gem and in 1938, Harry Oppenheimer, son of the founder of De Beers, traveled from Johannesburg to New York to meet with Gerold M Lauck, the president of N W Ayer, a leading advertising agency in the United States. Pretty soon they stumbled upon the brilliant idea of associating diamonds with “romance” and the idea of diamonds being “forever” exploded. The resale market of diamonds disappeared as diamonds became the symbol for “eternal love” while De Beers limited the resale of diamonds to make it even more “valuable”.
While the majority still clings to the “diamonds are forever” myth created by pure marketing genius, diamonds can be seen as a good commodity to diversify your portfolio …
Bill Mason, master jewel thief, points out the four ways to grade diamonds.
The 4 Cs of diamond dealing
Carats – This is a measure of weight. It’s a very old term derived from “carob”, a seed that doesn’t vary much in weight and was used as a unit of weight in Ancient Greece. It’s the most reliable test of value. When a diamond increases in size, the value increases exponentially. Don’t confuse a “Carat” with a “Karat”, another jeweler’s term that refers to the purity of gold.
Clarity – Every diamond has minute impurities called “inclusions”. These are usually caused by traces of minerals. A “flawless” diamond has almost no inclusions and, as with weight, the fewer the inclusions, the exponentially more valuable the stone.
Cut – This is how the diamond is shaped. Different shapes allow different amounts of light to escape from the top of the gem. A classically cut diamond is shaped like a spinning top. The light reflects around the inside of the stone and them escapes out the top. The more light that shoots out the top, the more brilliant the stone. The classic cut is the “ideal” cut and makes for the brightest jewel. If the cut is too squat, light leaks out the side. Whereas, if it’s too tall, light will escape through the bottom. There are a number of “fancy” cuts oval, marquise, pear and emerald.
Colour – The facets of the diamond naturally break up the light just as a prism would. This results in the “fire” or sparkle of the stone. If a stone has a colour, then it’s like looking at it through tinted sunglasses. Any colour in the stone will reduce the “fire”. The value associated with colour is a matter of taste, and comes and goes as fashions change. If the colour is extremely strong, it can add value. But traditionally, a white diamond holds its value through the ages.
A one carat flawless white diamond with an ideal cut will set you back around R40,000. If you’re looking to sink less capital into the luxury sector it might be an idea to diversify your portfolio with one of South Africa’s diamond mining companies…
Tags: Commodities, diamond
