Carat and stick approach to diamond investment

John Andrew offers a guide to the four C's for prospective gem buyers and hints on how to bypass the high mark-up high street jewellers

They last for ever, they come in different shapes and sizes, they range from moderately to astronomically expensive, you can wear them, especially if you are a glamorous woman, and men these days wear them too, especially in signet rings. The very word diamonds conjures up dazzling images of shimmering facets, great wealth and glamorous women.

A diamond may be a girl's best friend, it fits all the standard investment criteria, but is it something the shrewd investor could buy and sell at a profit? The answer is, however, not straightforward, because the world diamond market is controlled by the Central Selling Organisation which is managed by De Beers. Mention the word investment at De Beers' London headquarters and the response is immediate and emphatic: "Diamonds are not an investment. They are the ultimate gift and a store of wealth."

The aim of the CSO is to balance supply and demand to prevent wild fluctuations in the market price of the stones. As such the CSO sells diamonds, but it does not buy them back. Because of De Beers' financial strength, the company can hold buffer stocks of diamonds not currently in demand, releasing them on to the market in an orderly flow when demand increases.

Last month Russia announced it was closing its Committee for Gemstones and Precious Metals, which controlled, amongst other things, the sale of diamonds mined in Siberia. It renewed fears that Russia would no longer sell its diamonds through the CSO but independently on the open market. If this happened, the price of diamonds could have plummeted. However, although the Russians desperately need hard currency, they are hardly likely to shoot themselves in the foot.

The rough diamonds from the big producing nations that belong to the CSO go to its London offices. There they are sorted into over 5,000 categories of number of shape, quality, colour and size. Even if obtainable, such a vast number of categories is a good reason for not even contemplating buying uncut stones.

Once sorted, the diamonds are blended into a "selling mixture" in preparation for the 10 annual "sights" in London, at which the rough stones are sold to some 160 clients of the CSO. The mixtures are offered at a non-negotiable price. Bargaining is only allowed for individual stones in excess of 10 carats.

Rough diamonds may not be an investment, but, how does one go about getting value for money on cut stones? The question may appear straightforward, but the answer is complex. As De Beers states in its excellent leaflet, Quality and Value, which is available from all good jewellers or direct from the CSO, "There's more to diamonds than meets the eye."

The characteristics that determine the quality of a diamond are known as the 4C's: colour, clarity, cut and carat, which is the stone's weight. The most sought-after colour for a diamond is one where there is no colour at all.

Clarity relates to the impurities in a diamond. The more impurities, the lower its price per carat. An internally flawless stone is known as "IF", whereas those with only very slight inclusions, which can only be seen with difficulty from the back of the stone using a 10x magnifying glass, are known as VVS1 and VVS2. Minor inclusions, which are still difficult to see with the untrained eye, are referred to as VS1 and VS2; noticeable inclusions which are easy or very easy to see with a 10x lens are S11 and S12, whereas those with obvious inclusions are 11, 12 and 13.

The precision and delicacy of the cut dictates the maximum amount of light that will be reflected through the diamond. When the stone is cut to good proportions, light is reflected from one facet to another and dispersed through the top of the stone. If a diamond is cut too deep or too shallow, light escapes through the bottom of the stone.

Finally there is size - 95 per cent of all cut diamonds weigh less than a carat. However, it is the inter-relationship of the 4C's that determines a diamond's value. A flawless, colourless one carat stone of good cut will be worth more than one which is twice the size but is near colourless with very minor inclusions.

If you want to buy a single diamond, the jeweller is still the best bet. It is a well-known fact that the mark-up of high street jewellers is one of the highest of retailers. But there are good reasons for this, the main one being the high value of stocks they have to hold to give their customers a choice. So, would it not be better to buy a cut stone and have a ring made? While perfectly possible, Andy Bone at De Beers admits that it is difficult for the public to buy an unmounted stone in Hatton Garden.

Although the supply and demand of rough diamonds is controlled, the price to the consumer is not. As one jewellery dealer, who wishes to remain anonymous, told me, "The differential between the buying and selling price of stones in Hatton Garden, London's diamond centre, is enormous - 100 per cent."

However, there is another way forward. In April, Sotheby's held its first auction of unmounted brilliant-cut diamonds in London, with most of the gems selling in the pounds 700-pounds 2,000 range. Each piece was sold with a laboratory certificate giving the classification of the stone. The buyers obviously included dealers, but also private buyers wishing to have pairs of earrings or a solitaire ring made.

A working jeweller will charge around pounds 300-pounds 350 plus VAT to have set a one carat diamond mounted in a handmade ring. A high street jeweller could well add a 100 per cent mark-up for arranging to have the work undertaken. Given that one carat near colourless stones were selling at around pounds 2,000 at Sotheby's in April, even a DIY approach does not come cheap.

However, at the end of the day, one will have a jewel that will mean far more to both the giver and the wearer than a similar piece just selected from a jeweller's stock. Nevertheless, for those with the time to search for what they want, the purchase of any item of jewellery on the secondary market - either from a jeweller or at auction - still represents the best value for money. Typically a solitaire ring which will retail new in a high street jewellers at pounds 4,000 will sell for half that sum on the secondary market.

FACT FILE

For copies of De Beers' leaflets on diamonds telephone 0171-404 4444

Details of Sotheby's new sale of unmounted cut diamonds telephone 0171- 493 8080

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Arts and Entertainment
From Mean Girls to Mamet: Lindsay Lohan
theatre
Sport
Nathaniel Clyne (No 2) drives home his side's second goal past Arsenal’s David Ospina at the Emirates
footballArsenal 1 Southampton 2: Arsène Wenger pays the price for picking reserve side in Capital One Cup
News
Mike Tyson has led an appalling and sad life, but are we not a country that gives second chances?
peopleFormer boxer 'watched over' crash victim until ambulance arrived
Arts and Entertainment
Geena Davis, founder and chair of the Geena Davis Institute on Gender in Media
tv
News
i100
Travel
travelGallery And yes, it is indoors
Life and Style
tech
Arts and Entertainment
The Tiger Who Came To Tea
booksJudith Kerr on what inspired her latest animal intruder - 'The Crocodile Under the Bed'
News
i100
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
film
News
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
Finacial products from our partners
Property search

Scottish independence: How will kilt-edged stocks fare?

Scottish companies were caned when the separatists surged in the polls. Is this the future, asks Simon Read, and would they be any better together?

Two million first-time buyers are locked out

The drought in lending to people with low deposits has created legions of frustrated buyers, writes Emma Lunn

Leaving money to charity in your will could help reduce the tax bill for your loved ones

Next week has been designated "remember a charity in your will week", to put the focus squarely on the subject
Money is slipping through our fingers: the UK is falling behind other countries in the amount we put away

How to save money: UK is crashing down the European league table for putting money away

The UK has slipped to 11th in the latest European league table of savers. Rob Griffin checks out the best options

Energy firms found guilty of bad practice could have licences revoked under Labour government

Caroline Flint, the shadow energy secretary, says a Labour government would create a new energy regulator

A student's guide to financial survival: You don't have to drown in debt at university

Fresh from A-level delight, the moment does not have to be soured by students resigning themselves to thousands of pounds worth of debt in three years' time. Rob Griffin sees how to pass the university challenge

'Dismal' eurozone data sparks concerns

European Central Bank chief Mario Draghi is under pressure to launch promised stimulus before the EU slides further
Love but not marriage: property is one area where cohabiting couples are in danger of losing out

How couples can protect their financial interests when cohabiting

People who simply live together cannot assume they have the same rights to each other's assets as spouses or civil partners. Michelle McGagh sees how they can protect their financial interests
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    IT Project manager - Web E-commerce

    £65000 Per Annum Benefits + bonus: Clearwater People Solutions Ltd: If you are...

    Trainee / Experienced Recruitment Consultants

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

    Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

    Trainee Recruitment Consultants - Banking & Finance

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

    Day In a Page

    Syria air strikes: ‘Peace President’ Obama had to take stronger action against Isis after beheadings

    Robert Fisk on Syria air strikes

    ‘Peace President’ Obama had to take stronger action against Isis after beheadings
    Will Lindsay Lohan's West End debut be a turnaround moment for her career?

    Lindsay Lohan's West End debut

    Will this be a turnaround moment for her career?
    'The Crocodile Under the Bed': Judith Kerr's follow-up to 'The Tiger Who Came to Tea'

    The follow-up to 'The Tiger Who Came to Tea'

    Judith Kerr on what inspired her latest animal intruder - 'The Crocodile Under the Bed' - which has taken 46 years to get into print
    BBC Television Centre: A nostalgic wander through the sets, studios and ghosts of programmes past

    BBC Television Centre

    A nostalgic wander through the sets, studios and ghosts of programmes past
    Lonesome George: Custody battle in Galapagos over tortoise remains

    My George!

    Custody battle in Galapagos over tortoise remains
    10 best rucksacks for backpackers

    Pack up your troubles: 10 best rucksacks for backpackers

    Off on an intrepid trip? Experts from student trip specialists Real Gap and Quest Overseas recommend luggage for travellers on the move
    Secret politics of the weekly shop

    The politics of the weekly shop

    New app reveals political leanings of food companies
    Beam me up, Scottie!

    Beam me up, Scottie!

    Celebrity Trekkies from Alex Salmond to Barack Obama
    Beware Wet Paint: The ICA's latest ambitious exhibition

    Beware Wet Paint

    The ICA's latest ambitious exhibition
    Pink Floyd have produced some of rock's greatest ever album covers

    Pink Floyd have produced some of rock's greatest ever album covers

    Can 'The Endless River' carry on the tradition?
    Sanctuary for the suicidal

    Sanctuary for the suicidal

    One mother's story of how London charity Maytree helped her son with his depression
    A roller-coaster tale from the 'voice of a generation'

    Not That Kind of Girl:

    A roller-coaster tale from 'voice of a generation' Lena Dunham
    London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

    London is not bedlam or a cradle of vice

    In fact it, as much as anywhere, deserves independence
    Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

    Vivienne Westwood 'didn’t want' relationship with McLaren

    Designer 'felt pressured' into going out with Sex Pistols manager
    Jourdan Dunn: Model mother

    Model mother

    Jordan Dunn became one of the best-paid models in the world