Why are coloured diamonds valuable?

For centuries, the diamond has been a symbol of power, wealth and social status. The ancient Greeks valued the indestructible stone and believed in its mystical power. Over the centuries, diamonds have been worn by kings, royalty and the most influential people in the world. However, not all diamonds are equally valuable. Stones of the appropriate quality are very rare and their unique nature determines the price. The most desirable and precious are coloured diamonds. Why are these stones so valuable?

Falling mining volume of exceptional diamonds

Last year, 113 million carats of diamonds were mined. It is 25 million (-18%) less than the year before. Mines were delivering fewer rough stones due to downtime caused by the coronavirus pandemic. The drop has also been a result of mine closures as the need to dig deeper increases and investment spending is growing. The restrictions introduced in connection with the spread of COVID-19 only strengthened the trend that has been visible for many years - the reduction of diamond extraction. Production is forecasted to decline by 1-2% annually, reaching 120 million carats in 2030. The falling supply may have an impact on the increase in diamond prices.

Table 1. Forecast of supply and demand

Not each diamond is a good investment

Yet, not all diamonds mined are of high value. Consulting company Bain & Co. estimates that about 40% of mined diamonds, due to their quality and small size, are used in industry. From the jewellers’ and investors’ point of view, they have no value. Another 40% are diamonds of a quality similar to that of jewellery. Like stones used in industry, those of a quality just close to that of jewellery standards are not used in the jewellery making and have no investment potential either. Only the remaining 20% of the mined stones are suitable for setting in jewellery or investing. When discarding very small stones (less than 0.4 carat), about 5% of diamonds of the appropriate quality are left. Among these stones there are colourless and coloured diamonds.

Are coloured diamonds exceptional?

Colourless diamonds are quite common, they account for almost all mining. It is diamonds of colour that are very rare. There is no precise data on the extraction structure of each colour, but it is widely believed in the diamond market that there is 1 carat of coloured diamonds (0.1%) for 1,000 carats of colourless diamonds extracted. Some even say that it is 1 stone in 10,000 mined. The rarer the diamond, the higher its price.

It should be emphasized that not all diamonds are suitable for setting in jewellery or for investing. Stones that meet these conditions are very rare. Most of them are colourless diamonds. The Fancy Color Research Foundation estimates that only 3% of diamonds that end up in certification laboratories are coloured diamonds.

A stone that has unique characteristics will be more desirable. More interest will translate into a higher price. The rarest among diamonds, coloured diamonds, will therefore be the most valuable. Unlike the colourless ones, it is very difficult (almost impossible) to find two identical coloured diamonds. This additionally increases their value.

The most popular coloured diamonds

The most popular yellow diamonds are estimated to account for 76% of the extraction of all coloured diamonds. According to FCRF (FCRF data is for fancy colour diamonds over 1 ct) the most common Yellow diamond on the market is of Fancy Light intensity, VS clarity, weight of 1 - 1.50 carats, in the shape of a cushion (cushion/radiant). Annually, about 1,300 - 1,700 such stones appear. Their price ranges from about 3 thousand USD/ct up to 4.7 thousand USD /ct at retailers. The price ranges due to the fact that every diamond is different.

How the quality affects the price

The price of the stone is influenced by: colour, clarity, carat (weight) and cut, i.e. 4C. The most valuable coloured diamonds will have very intense colours (intensity).

Diamonds were formed deep underground under the impact of extreme heat and pressure. As a result of this process, virtually every stone is contaminated. Impurities can be of varying intensity. We divide them into internal (inclusions) and surface (blemishes). Clarity refers to the degree to which these imperfections occur.

Diamonds with a greater mass (carat weight) are more valuable. With the same parameters, larger stones with a certain weight (e.g. 2 ct) are worth more than several smaller stones with the same total weight (e.g. 0.5 + 0.7 + 0.8 ct).

Table 2. Selected prices for colourless diamonds

Source: Rapaport

Higher price level of coloured diamonds

A yellow diamond of Fancy Light intensity, VS clarity, weight in the range of 2 - 2.99 carats, in the shape of a pillow, will be more unique than a colourless diamond with the same parameters. Annually, only about 230-290 similar stones are placed on the market. Lower availability significantly affects the price. At retailers, it varies between 3.3 thousand USD/ct and 6.4 thousand. USD/ct. This shows that the mass of the coloured stones is very important. An increase in weight by 1 carat translates into a price increase of 10 - 36% per carat. Larger disproportions will occur with larger stones. With the same characteristics, but a weight in the range of 3 - 3.99 carats, the price of a yellow diamond per carat at retailers is 4.3 thousand USD/ct up to 7.3 thousand USD/ct. The price is due to their very unique occurrence. Only 180-240 such diamonds enter the market each year.

Table 3. Influence of uniqueness on the price of a diamond

Source: FCRF

Pink diamonds deficit

A very small amount of coloured diamonds find their way to the market each year. The most common are yellow-coloured stones, which account for about three-quarters of the annual extraction of coloured diamonds. The least common are blue and pink diamonds, which account for 0.5% and 5% of the extraction, respectively. Their price will be correspondingly higher than that of yellow stones. The case of pink diamonds is special. Due to the closure of the Argyle mines in Australia, where 90% of all pink diamonds on the market came from, the demand for them will exceed supply many times over. Strongly limited availability of new stones will be an additional factor determining the higher price.

Uniqueness of coloured diamonds

The most popular of hard-to-reach blue diamonds is a 1-1.50 carat cushion/radiant stone with IF, VVS, or VS clarity and the intensity of Light or Fancy Light. Blue diamonds with such parameters appear on the market once every 1-2 years and their price on the retail market is up to 100,000 USD per carat. Diamonds with a greater mass, over 2 carats, are found once every 5-6 years. Stones over 11 carats appear every 25 years or less.

The specificity of the pink diamond market is similar. On the secondary market, the prices of pink diamonds have been growing dynamically for several years. The most common pink stones on the market were a 1 - 1.50 carat cushion-shaped diamond (cushion/radiant) with Fancy Light intensity and VS clarity. Annually, 23 to 27 such stones are placed on the market. Their price on the retail market ranges between 62 and 66 thousand USD per carat. The price is significantly increased by the aforementioned liquidation of the largest pink diamond mine in Argyle. 

The most precious diamonds in the world

In fact, diamonds are not a rare stone. Compared to other gemstones, they are among the most popular. Despite the widespread use of diamonds, diamonds that are suitable for jewellery or as an investment asset are very rare. Due to their characteristics, most of the mined stones are only suitable for industrial use. Only about 20% can be used for the production of jewellery. Therefore, not all diamonds are valuable and expensive.

Coloured diamonds are very rare. Only every thousandth of a carat mined in the world is a coloured stone. The most unique among the coloured diamonds are those with a blue and pink colour. Due to their infrequency, their prices are very high. The demand for them is constantly growing, mainly among Asian and North American consumers, and the supply is gradually decreasing. Both the growing demand-supply gap and the unique character strongly drive the price.

Stones of the appropriate quality are rare and the rarity of the diamond determines the price.

Table 4. The rarity of occurrence of selected diamonds

Source: FCRF

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Fancy Colour Diamonds

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