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Exceptional Diamond Segments

Editorial

Apr 4, 2014 2:58 AM   By Avi Krawitz
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RAPAPORT... Unique large and color diamonds are poised to fetch strong prices on the auction circuit again this year. The Sotheby’s Hong Kong jewels sale taking place on April 7 and the Christie’s New York jewels sale on April 16, are well timed to carry on the momentum for these goods from the Basel shows this past week – or more correctly, the momentum from last year.

Exceptional diamonds consistently broke records at various Christie’s and Sotheby’s auctions in 2013 and competition rose between the two houses to source the most exciting goods that they could place under the hammer. Subsequently, demand at both The Diamond Show in Basel and the Baselworld fair signaled continued robust demand for unique diamonds and jewelry, with a still growing appetite for high-end goods that the auction houses can build upon. (See report about the show here).

At a glance, the upcoming auctions don’t have standout individual stones that are expected to break records, as was offered last year. However, they still have an impressive lineup of lots.

Sotheby’s is anticipating to fetch $7.3 million to $8.3 million for a diamond necklace consisting of 17 brilliant cut, D, IF diamonds with a combined weight of 85.33 carats. The top lot at the Christie’s auction is a pair of ear pendants from round, 22.60-carat and 22.31-carat, D, IF diamonds, that is expected to sell for between $7 million and $10 million. An oval, 40.43-carat, D, potentially flawless diamond was given an upper estimate of $7.8 million, or 192,926 per carat, by Christie’s.

While some argue that the auctions have developed into an unsustainable bubble, dealers note that the high prices achieved at auction reflect what is happening in the market – albeit very specific high-end large and fancy color segments of the trade.

Dealers explain a number of factors fueling the continued uptrend: people want unique things and these goods provide that distinction; the wealthy are still buying in the top end and are consistently in the market as investors or collectors; investors are looking for interesting alternatives to store value since gold has depreciated in the past year and concerns remain about the U.S. dollar; and wealthy consumers in distressed or conflict-ridden countries tend to buy high value assets that are easily transportable.

While these factors are driving demand equally for large diamonds and color diamonds, it is important to distinguish between the two markets.

In particular, there was a lot of color on display in Basel with many in the trade noting that they’re being pushed by jewelry retailers to satisfy growing consumer demand for color. Tiffany & Co. CEO Michael Kowalski noted increasing demand for color diamonds and other gemstones in a recent conference call, with the company’s yellow collection being a standout growth item in 2013.

Dealers have subsequently gravitated toward color, noting that they can gauge better profit margins from color than white goods, since pricing is less formal. Consequently, the number of dealers in the color diamond market has multiplied in the past few years.

However, some feel that prices have increased too much. “You can’t find fancy yellows at prices where I feel comfortable,” said one polished dealer in Basel. Others note that demand for fancy yellows and intense light yellows have softened because prices have gone too high, while the better quality intense and fancy vivid yellow diamonds remain firm.

With the very high-end still robust, it was no coincidence that an exceptional color piece stole the show on the opening day of Baselworld when Laurence Graff unveiled the Hallucination watch. The timepiece features more than 110 carats of rare color diamonds, which Graff values at around $55 million. While the Graff name undoubtedly makes the piece more valuable than the sum of its colored diamond parts, dealers stress that such pieces hold their value because of the rarity of its components.

There simply aren’t many of these diamonds around – which is partly what made 2013 such an incredible year for the auctioneers.

Equally buoyant is demand for very large diamonds. However, dealers note that demand for commercial-quality large diamonds has become speculative, largely due to trends in the rough market, while demand for better-quality large stones is more sustainable. Again, they explain that higher-end goods hold their value. As this column wrote in March, “While demand for commercial goods will likely cool, there is an overwhelming sense that the market for special large rough and polished diamonds will remain hot in 2014.” (See editorial, The Special Rough Market published on March 14).

One in-demand segment doesn’t make an industry and there is certainly concern that the market for commercial goods will slow as the year progresses. Already, with rough prices reportedly up in April, dealers expect a slowdown in polished demand as higher rough prices are creating a liquidity crisis.

Therefore, after a strong first quarter, the overall diamond trade is gearing for a more cautious environment in the coming months – with the exception being those exceptional large and color diamonds. Visitor traffic in Basel was not buoyant, but the shows were positive because it’s primarily a venue for watches, high-end jewelry and fine-quality diamonds. Based on sentiment in these segments, there’s every reason to believe the uptrend with continue. That’s good news for the auction houses and well-established dealers in this relatively small section of the diamond market.

The writer can be contacted at avi@diamonds.net.

Follow Avi on Twitter: @AviKrawitz and on LinkedIn.

This article is an excerpt from a market report that is sent to Rapaport members on a weekly basis. To subscribe, go to www.diamonds.net/weeklyreport/ or contact your local Rapaport office.


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Disclaimer: This Editorial is provided solely for your personal reading pleasure. Nothing published by The Rapaport Group of Companies and contained in this report should be deemed to be considered personalized industry or market advice. Any investment or purchase decisions should only be made after obtaining expert advice. All opinions and estimates contained in this report constitute Rapaport`s considered judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Thank you for respecting our intellectual property rights. 
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