Are Diamonds An Investment?
How to buy an engagement ring
What you've always wanted to know about diamondsDecember, 2006 by Surfer Sam
What is a Diamond?
Diamond is a mineral, a natural crystalline substance, the transparent form of pure carbon. It is found in a type of igneous rock known as kimberlite. The diamond itself is essentially a chain of carbon atoms that have crystallized under extreme heat and pressure.
Diamonds that have come to the Earth's surface are generally very old, ranging from under 1 billion to 3.3 billion years old. Diamond-bearing rock is brought close to the surface by volcanoes that erupt from deep inside the earth. Carbon is one of the most common substances on the planet, but diamonds are extremely rare.
Diamond is the hardest substance known. Only a diamond can cut another diamond. A diamond is a good conductor of heat and draws heat away from your skin, so it feels cold to your touch. These properties make the diamond useful for industrial applications, such as cutting and polishing. Like other carbon forms and coal, diamonds will burn at approximately 800 degrees Celsius.
Why are diamonds valued?
Diamonds are valued as symbols of endurance and love. The beauty of a diamond comes from the LUSTER of a diamond as it reflects light. The FIRE of a diamond is the refracted light that it disperses, like a prism, into the colors of the rainbow. The ice cold touch and the brilliant fire combine as the “fire and ice” of a diamond.
Diamonds have strong symbolism. They were used two thousand years ago in India in statues as the eyes of the gods. Greeks believed diamonds were tears of the gods and Romans thought they were splinters of fallen stars. In the symbolism of gemstones, the diamond represents steadfast love. Diamonds are the symbol of the 60th and the 75th anniversary. They are also the birthstone for the month of April. The engagement diamond is the popular symbol of enduring love.
What makes a good diamond?
 Diamonds are judged by the “four Cs”: carat, clarity, color, and cut. There is also a “fifth C”, which is cost.
The carat weight measures the mass of a diamond. One carat is defined as a fifth of a gram, or about .007 ounce. To measure smaller diamonds, the carat is divided into 100 points. The point unit is equal to one one-hundredth of a carat (0.01 carat, or 2 mg), which is .00007 ounce, 7/100,000 of an ounce. The carat is the unit of weight in the diamond industry and is standardized as 0.2 gram (0.0071 oz or 200 milligrams) and is divided into 100 points. Thus a 10-point diamond weighs 0.1 ct (0.00071 oz or 20 mg). The largest diamond, the Cullinan, weighed about 3000 ct (4.27 oz or 600 g) and was the size of an average human fist.
The second of the four Cs, the clarity of the gem, is determined by the inclusions it contains. No natural diamond is perfect. The number, size, color, relative location, orientation, and visibility of inclusions all affect the clarity of a diamond. Inclusions do not affect the servicability of the diamond. However, large clouds affect its ability to transmit and scatter light, and large cracks near the surface may cause the diamond to fracture.
Diamonds can occur in nearly any color, though yellow and brown are by far the most common. The color scale for colorless diamonds goes from 'D' (colorless) to 'Z' (bright yellow). Pure or nearly pure diamonds are transparent and colorless. Colorless diamonds are preferred over those with a yellow cast. However, diamonds with a strong color, such as red, pink, blue, yellow, are very rare and are highly valued. These are called colored diamonds and fancy colored diamonds. It is impurities in the stone that gives a diamond its color, like nitrogen, which gives it a yellow color, and boron, which gives the stone a blue color.
What we call black diamonds are not truly black, but rather contain numerous dark inclusions that give the gems their dark appearance.
The fourth C is the cut of the diamond. The skill of cutting determines how well the diamond will reflect and refract light. How well a diamond is cut affects its beauty. A well-cut diamond appears to be of greater carat weight and appears to have a better grade of clarity and color. Due to its particular crystal structure, the diamond has 4 planes of weakness along which it can be split, which diamond cutters use. Even with modern techniques, the cutting and polishing of a diamond crystal always results in a dramatic loss of more than half of its weight.
When a diamond has too much “fire,” it looks like a cubic zirconia. A poorly cut stone appears dark at the center, and sometimes the ring setting may show through the diamond as shadows. There are a number of viewers that measure the light performance of the stone, and help consumers evaluate the stone.
The brilliant cut is the best cut to reveal the intricacies and the natural perfection of the stone. The baquette cut, shaped like a loaf of bread, was popular during the Art Deco period. Right now, the princess cut is popular, because it accentuates a diamond’s fire rather than its luster, and also wastes less of the original crystal. Other cuts are marquise, heart, briolette (a rose cut) and pear cuts.
The one carat diamond is very popular with buyers, and its price is disproportionally higher than the price of a smaller stone.
Sometimes a diamond is cut poorly to increase the carat weight. The cutter compromises the reflectiveness, in order to increase the weight of the cut stone. This happens most often when a diamond is near 1.0 carat weight, the weight most desired by buyers. Suppose that, ideally, the diamond should be cut to a .95 carat weight. But the 1.0 carat weight will sell better, so the cutting is compromised. The cutter might make the girdle thicker or increase the depth. These changes reduce the sparkle, but do not change the diameter of the diamond. So a poorly cut one carat may look the same size as a well cut .85 carat.
Ideally, you can tell that a round brilliant diamond is well-cut if it has a diameter of 6.5mm, which is 6.5 times the cube root of the carat weight. Also the depth of the ideal round brilliant should not be more than 62.5%.
Some jewelry experts advise consumers to buy a 0.99 carat diamond for its better price or buy a 1.10 carat diamond for its better cut, avoiding a 1.00 carat diamond which is more likely to be a poorly cut stone.
The Diamond Certificate
Most diamonds come with a certificate of authenticity, which lists the rating of the diamond for the four Cs. There are four gemological laboratories which issue recognized diamond certificates, including the Gemological Institute.
 Most investors have no choice but to rely on the piece of paper that comes attached to the diamond to specify the grade, and hence the value, of their investment. Not all the certificates, however, emanate from the Gemological Institute of America. Many certificates have been issued by less reputable, or even nonexistent, laboratories, and the diamonds might be of a much lower grade than that certified.
Even if the certificate comes from a bona fide laboratory, another assessor may dispute its evaluation of the diamond. The director of the Gemological Institute observed, "I've never seen two experts agree on the quality of a particular diamond."
The diamond is not an investment
For investment commodities like copper and oil, the dealer quotes a price at which you can sell (the bid price) and a price at which you can buy (the asking price). There is no resale market like this for diamonds. The value of diamonds, it turns out, cannot be established through an open market. There is no market for your diamonds, and they should not be purchased as an investment.
All dealers have a strict policy against repurchasing diamonds. A few dealers will offer to sell your diamond on consignment, and a few will offer you about 1/3 of the retail value. The retail markup on a diamond ranges from 1 to 2 times its wholesale price. Stores will not repurchase your diamonds, because you will be insulted at the price they offer. Furthermore, retailers buy their diamonds on consignment from wholesalers, and do not pay for them until they have sold them. A large buyer of resold diamonds, Empire Diamonds, will pay you about 60% of the wholesale value of the stone.
There is, however, a resale market for large, nearly flawless stones and for stones owned by celebrities, through the auction houses of Christie’s and Sotheby. Even these diamonds sales do not result in a profit. Insurance premiums on good diamonds can be as much as $30,000 a year. When you consider annual insurance premiums plus auction fees and sales taxes, the owner usually has a net loss.
The Wrap-Up
A typical diamond has very little value on the resale market. Yes, it's a priceless diamond, just as the sales person said, as long as you don’t try to sell it. Wear your diamonds as a symbol of commitment and strength. Enjoy diamonds for their inherent beauty. Display them as a token of wealth and power. But don't plan on reselling them.
My wish is that these investment tips bring you much success. I hope you have a very happy day.
-----Surfer Sam
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