A Look at How Diamonds Are Sold in Today’s Markets
Back when De Beers was the only game in the diamond business, it had the classic approach to selling them of giving a customer a bag of stones and a take-it-or-leave-it price.
Things have gotten a lot more competitive since then, and diamonds – especially the fancy colored ones – just keep getting more and more popular. It’s made the business of buying and selling diamonds a lot more sophisticated, particularly since DeBeers lost its monopoly on diamonds and other diamond producers of all sizes came into the market with new sales practices.
It’s not just the manufacturers (businesses that buy and cut the rough diamonds) that keep the producers in business. Other market segments for diamonds include secondary market traders, buyers for jewelry stores, firms that specialize in acquiring hard investment assets for their clients, like Paragon International Wealth Management in Toronto, and sometimes even some of the savvier monied investors and connoisseurs themselves.
Here’s how the system for selling diamonds shakes out today.
Selling rough diamonds via the “Sight” system
This is the traditional DeBeers system by which most of the larger producers sell the majority of their rough diamonds. They typically hold Sights ten times a year. The five-week intervals between them is what’s required by manufacturers to cut and polish their allotments before they need to replenish their inventory. The sales are called Sights because buyers are invited to see the diamond parcels before buying.
Sights don’t give manufacturers a lot of room to negotiate on either price or quantity. They see their allotment and are given a per-carat price. They can refuse some of their supply, but making a habit of it can jeopardize their relationship with the producer – a danger as they count on a consistent supply and will pay more to ensure it.
The rise of tenders
Tenders were devised as a means for the smaller producers to compete in selling rough diamonds as their smaller capacity made it difficult to provide manufacturers consistent and homogeneous products. They have also become a high-profile way to sell cut diamonds, both in settings or not, and especially the fancy coloured diamonds that are more rare and in high demand.
In tenders, diamonds that are sorted into small, homogenous parcels according to size, quality and color. Buyers can view them and gauge for themselves what price each parcel should bring and make a bid – a single bid per parcel, with the highest bid taking it.
For the purposes of the rough diamond market, the tender approach to sales have been problematic. As industry newsletter Rough Polished explained it, smaller players found it tough to compete in bids against larger companies with bigger financial muscles to flex. Others were concerned because it hindered a steady supply of goods.
But for other market segments they have helped to boost the cachet of diamonds as investments and collector’s items.
The annual Argyle Pink Diamonds Tender, launched in 1984, may be one of the most spectacular showcases for these rarest of rare fancy diamonds. Rio Tinto’s Argyle Mine produces 90 percent of these diamonds, and each year puts some of its most spectacular pinks up for bid in an exclusive, invitation-only event. Among those who may be lucky enough to get one are select diamantaires and collectors – connoisseurs and luxury jewelers included. Their names are not made public.
Toronto’s Paragon International Wealth Management notes that the Argyle Pink Diamonds Tender is unlike typical auctions or rough tenders in that bidders don’t know what the competing bids are and only a single bid on each diamond is allowed. Prices for the featured pinks can exceed millions of dollars per carat.
Auctions are another option for diamond buys
Auctions are similar to tenders, but (events like the Argyle tender aside) tend to have a more sophisticated, if less exclusive bidding process. They work in the same way as the more commonly known auctions for property, collectibles or art: Interested buyers place incrementally higher bids until one buyer remains.
This, too, is a means for selling both rough and finished diamonds. DeBeers Auction Sales, for example, sells a small amount of rough diamonds each month. Prices attained help establish selling prices for the producers’ Sight allocations. However, the higher-end brokerage firms like Sotheby’s and Christies houses also hold sales of notable finished and set diamonds as well, geared to the same group of buyers as the Argyle tender.
It was at just such an auction by Sotheby’s earlier this year that a record was set in the auctioning of the unique, 132.5-carat Pink Star. Mined by DeBeers in 1999, it is the largest, internally flawless fancy vivid pink colored diamond ever graded by the Gemological Institute of America. The winning bid: $71.2 million by Hong Kong Jeweler Chao Tai Fook.