Rapaport Magazine

The Market for Super Gems

By Martin Rapaport with Amber Michelle

Photo courtesy Sotheby’s.

David Bennett, worldwide chairman of Sotheby’s jewelry division and chairman of Switzerland, made jewelry history once again when he sold the Blue Moon of Josephine diamond for $48.5 million in November 2015 — the most expensive diamond or gemstone ever sold at auction. Known as the “100-carat Man,” Bennett has sold seven 100-carat diamonds during the span of his four-decade career at Sotheby’s. He has handled some of the world’s most important historical jewels, including the collections of the Duchess of Windsor, Ava Gardner and the Beau Sancy diamond, which once belonged to Henry IV of France. After the fall auction season closed this past December, Bennett sat down with Martin Rapaport at Sotheby’s New York for this exclusive interview about diamonds and the auction market.

Martin Rapaport: How is the jewelry auction business?
David Bennett: It’s been an extraordinary year. The May auction in Geneva was a record sale of $160,914,902. We had the Blue Moon of Josephine beating the Graff Pink, very exciting, and we had the 100-carat DIF in New York. The jewelry market is extremely good at auction. Toward the end of the year, there was a slight, slight, softening in large white diamonds.

MR: Is it because all of a sudden fantastic stones have appeared?
DB: Most of the private sellers are one-off sellers. They come, they sell what they have and that’s it. You never really see them again. The opportunity effect is very hard to predict. If we visit Munich for example, it might be just at the right moment when a particular individual is thinking of selling jewelry she inherited from her mother. We don’t really know when and where sellers of fantastic items will appear.

MR: Are there a lot of suppliers in the trade who are producing magnificent diamonds for you? Do they know in advance, when they buy the rough, that auction is the way they’re going to sell the diamond?
DB: We’ve had considerable success in selling dream-ticket colored and white diamonds. We have built relationships with some of the cutters. When we see a big rough diamond coming onto the market, we follow it. The Blue Moon seemed, right from the moment it was discovered, to be a stone that would attract a huge amount of attention. It is also, I think, the most beautiful blue diamond I’ve ever seen. We want to remind people of the magic, history, glamour and luxury of these wonderful treasures.
   The campaign we designed around the Blue Moon was precisely that. We made two films to illustrate the wonder of this extraordinary stone that had been sleeping miles beneath the earth’s surface for billions of years. Suddenly, at this one moment, in a fraction of a second in time, the diamond is brought up to the surface by pure chance, with a volcano. It’s that mystery that we as an industry need to remember, because that’s what makes people dream about owning diamonds. Somehow, we’ve become very blasé. The industry, particularly the client-facing part of the industry, has to remember these things are objects of desire and have to remain objects of desire. Otherwise people, clearly, will stop desiring them.

MR: So Sotheby’s adds value to diamonds by romancing the stone?
DB: That’s what I try to do. It’s been important to me to place every stone that I’ve offered over the years in a context of rarity, beauty and historical importance and to somehow bring the magic out of the stone.

MR: So who are the buyers of these very rare and special diamonds?
DB: The one thing they have in common is, of course, that they have the funds to buy these items. Sometimes people don’t know what they want until they see it. When I sold a 25-carat ruby in 2015 for a huge price — three times more than any other ruby has ever sold for — the biggest challenge was exciting people about it, because nobody had ever seen a 25-carat pigeon blood Burma ruby before. So they didn’t know that they wanted it. I talked to one particular individual and he was saying to me, “A ruby, huh?” He hadn’t thought about buying a ruby. I showed the ruby to him and he said, “Wow, that is really fabulous, I’ve never seen anything like it.” I said, “You’ve got a point, because in 40 years in this business I’ve also never seen anything like it.” He asked, “How much should I pay for it?” I said, “There isn’t a price for this stone. All I can do is try and tell you how wonderful it is.”
   The best way to define something as being beautiful is to show it — by explaining to him how rare it was and showing him its beauty and by detailing the history of the stone. Once he understood all these things, he ended up bidding. He didn’t buy it, but he was a very important part of the underbidding process. There isn’t any one particular buyer because in the end, it’s somebody who enters into the magic of this world of extremely rare natural treasures who buys the stone.

MR: How important are outside experts who can understand the uniqueness, specialness and rarity of a gemstone? Is there enough gemological knowledge out there to successfully differentiate and value these multimillion-dollar pieces?
DB: If you’re thinking of buying a gemstone, you need an advisor who’s seen a lot of stones. He can relate it to specific points of reference that he has seen with his own eyes. I think that’s hugely important. The ruby is a very good example. A pigeon blood ruby is not an exact definition of color. It’s sort of an agreed upon term that the trade uses to describe a particular, very small spectrum of the red end of the color scale. So you really need to determine if this is a good pigeon blood. The only way you can determine if something is good or exceptional is by mentally comparing it with many other top-quality stones you’ve seen. A laboratory certificate is not going to do that.
   The same is true for colored diamonds. In my experience, no blue diamond is like another one. A blue diamond can only refer to other blue diamonds. It’s not like any other gemstone. Don’t think a blue diamond is going to look like a sapphire. It’s an entirely different and special color and gem. We have to stop thinking of particular types of colored diamonds, particularly blue, pink, as a category of gemstones — they’re individuals.

MR: Are the buyers of the stones mostly trade?
DB: A stone that needs repairing or to be recut to improve its quality, very often will go to somebody in the industry. Certain types of old colored diamonds are susceptible to being recut to improve the color or appearance. But when a stone is finished, like the Blue Moon, it absolutely goes to a private.

MR: Could you explain why these historical prices are being made at a time when the global economy has been very weak?
DB: Even though there may be a general economic malaise, a lot of people are making a lot of money and are very cash-rich. Fine gemstones have always been something that people consider having in their portfolio of investments. If they are going to buy something, they want to buy the rarest, the best. In my experience, in this market now, it’s ten times easier, no matter what the price, to sell the rarest and the best than it is to sell the second best or the third best, where price suddenly becomes an issue.

MR: Do you think that the economic uncertainty is fueling demand? Political unrest in the Middle East, uncertainty about the Chinese economy and the Chinese government cracking down on corruption: Is that driving demand?
DB: The first 100-carat DIF diamond that I took for sale arrived at what was conceivably the worst moment. Saddam Hussein had just invaded Kuwait. The underbidder of that stone was a person who was attracted to the diamond because, as he said to me, “How else can I put $12 million in my pocket?” That’s portability. Great diamonds and colored stones have been admired, valued, esteemed and collected by the richest and most powerful for as long as history has been recorded. There’s a pretty good likelihood that this will continue.

MR: Do you feel that the kind of magnificent jewelry that you sell, particularly to very wealthy people, is a realistic and a reasonable form of diversification of assets?
DB: That’s not for me to judge. There are people who think like that. People that I speak to say real estate, jewels and gold in some cases are all possible interesting areas of investment. Whether jewelry is a long-term investment, I don’t know, but it hasn’t performed badly in the past 2,000 to 3,000 years!

MR: What adds value, the history, owner or maker of a piece? What percentage of the value is attributable to these kinds of things?
DB: A good example would be the Duchess of Windsor sale. It’s the first sale that was very heavily mediatized and followed. Lot 15 was a pair of the Duke’s cufflinks that we estimated just on its intrinsic value. It was a Cartier set estimated at $15,000 to $20,000 and it sold for 50 times the estimate because it had been the King’s cufflink set. If you went out today to buy some cufflinks formerly owned by the King of England, you would have a great deal of trouble finding them. Sometimes provenance, the history of the item or the previous ownership, can make a piece very desirable and valuable.

Beau Sancy
There was the Beau Sancy. The diamond had been cut in the late-sixteenth century and had been bought in 1604 by Henry IV of France and given to his wife Marie de Médicis to wear in her crown for the coronation in Saint Denis cathedral in Paris. That stone was magical. A lady rang me up before the sale and asked to see the Beau Sancy. I opened the box, she took a look, gasped and burst into tears. It was such an extraordinary emotion. It’s a kind of visceral emotional response that I think separates a stone like that from all the rest. It was a stone that had been owned by four royal houses, including the British. It was an off-color SI2 stone. The stone was cut in this extraordinary way. It was easy to imagine the cutter, in Amsterdam, cutting it by hand. When Henry IV bought it, it was the most valuable stone in the world. You can have diamonds where the value is unrelated to the history of the object. And you can have diamonds where the value is all about the history.

MR: What about regular jewelry? Mrs. Jones passes away and her daughters want to sell it. What about that market?
DB: Well, that’s very much a major part of our market. I mean, this year we’ve had a very good sell-through rate. Either we’re doing something very, very well, which is getting the price right, or the market is very healthy and there’s a lot of demand. Perhaps both.

MR: Are there jewelry collectors? How do brands play into this? If a piece is Van Cleef & Arpels or Tiffany & Co. or Harry Winston, how much value will that add?
DB: Collecting is about desire. There are people who collect, for example, pieces by Belperron.

MR: Brands also play an important role. For example, if you had an unbranded generic diamond ring and a Graff ring at auction, most people would go for the Graff ring, because it’s a standard of excellence. The question is how much more would they pay?
DB: That’s really a question of the competition. I think the brands attract and focus much more attention on the item. The important thing at an auction is to get people’s interest started. Once you’ve got people started, there are all sorts of psychological imperatives that may keep them going. Having a signed ring is more likely to have more people after it.

MR: You’ve made historical prices for fancy colors. Even in this economic environment, everyone’s excited about fancy colors but the same level of excitement is not there for whites. Why do you think fancy colors have taken off while white diamonds are languishing?
DB: It goes back to the fact that we need to give more attention to marketing white diamonds. All the record prices, almost without exception, have been for colored diamonds. The ruby came close. It was $30 million, not far away. Colored diamonds are very beautiful. A pink diamond is an absolutely charming, entrancing stone. A blue diamond is mysterious and wonderful. Whereas with a white diamond, until you put it in front of somebody, put it in somebody’s hand, it is difficult to imagine, as most people are never going to have an opportunity to hold a 30-carat-plus D flawless gem. I sold a couple of very large stones in 2015 for very high prices to a private collector and it was simply a question of talking about it, explaining it and putting it on their finger, and then it’s “wow.” I think it’s the wow that is ultimately the thing that sells the diamond. The wow is an experience. You have to understand how big a 30-carat diamond is, or a 50-carat or a 100-carat.

MR: Are fancy color diamonds overpriced? Is there a bubble today?
DB: I don’t think so. If you stop thinking of diamonds as a commodity and start thinking of them as unique, special, one-of-a-kind individuals, then of course they are not overpriced.

MR: Is there an issue of conspicuous consumption, so that the more expensive the diamonds are, the more people want to buy them?
DB: For certain groups of people, headline auctions and publicity are very important. It makes the diamond more desirable. I think that’s all part of it.

MR: Do the auction houses appraise jewelry? When you appraise it, is there any conflict of interest?
DB: Because I’ve worked so long in the auction business, I have a very high opinion of the process. Selling at auction is a wonderful process. It beats most other ways of selling things, because first of all, it takes the worry out of it, you’re presenting it to an international audience on a very sophisticated and open platform. The other thing I like about the auction business is that the seller and the auctioneer are on the same side. The simple dynamic is the more we sell it for, the more commission we make. It’s not like we’re trying to beat people down. In my experience, the least successful auction examples are when people have insisted on very high reserves that we’ve counseled against. If I were selling at auction, I’d put a very low reserve and let the auction take effect.

MR: What’s the most fantastic piece of jewelry you’ve ever seen?
DB: The Beau Sancy. It left me speechless. What history. You’re the King of France and you send someone to negotiate the purchase of the most valuable diamond in the world. Can you imagine that? There it was and it weighed 30-something carats. 100 percent Golconda. It’s the only diamond sold in recent years that is 100 percent Golconda. It could not have come from anywhere else.

MR: What’s going to happen next year? Do you expect this trend toward very expensive diamonds sold at historical prices to continue?
DB: I think if the market or mines continue to produce very rare colored diamonds, there’s going to be a continuing market for them. I really don’t see any lack of demand, but it’s only for these very, very rare gems. Very high levels of excellence that we can attach to something is extremely important and I think the market for excellence is going to continue. For the rest of the market, it’s really more a question of what happens economically in the world. It’s a question of how much free money is available. You and I may be sitting here in a year’s time with an economy that’s gone into a major recession, who knows? I think the American market is going to be very important next year. But there will be new emerging markets, I’m certain of it. I think India has massive potential. If India can stop its punitive import taxes, it could be the biggest market in the world. If the Indian economy is loosened up and allowed to perform, it would be fantastic. You don’t have to explain anything to Indians about colored stones and diamonds; it’s in their blood.

MR: Do you think white diamonds will come back?
DB: I don’t think they’ve gone. I think maybe at the moment, colored diamonds are the fashion. All the papers are always talking about colored diamonds with articles about how colored diamonds have gone up in price. There has been less publicity about white diamonds. I think the diamond industry must get behind promoting white diamonds. When it comes to the top end of the market, we must stop treating these diamonds as commodities and instead treat each important diamond as the individual it is.

Article from the Rapaport Magazine - March 2016. To subscribe click here.

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