Investing in

Fancy Coloured Diamonds

 DIAMONDS AS AN INVESTMENT

Investment grade diamonds represent

approximately 1-2% of the global diamond The factor that most influences the price of a
market. The remaining demand comes from fancy diamond is its colour. For the majority of
jewellery and for industrial uses such as lasers, diamonds, the less colour the better. A completely
drills and surgical equipment. Unlike precious clear diamond with no hint of colour will be
metals, diamonds do not have a universal price considered more valuable than one with a slightly
per gram. The industry uses price guides such yellow tint. Once you get beyond a Z on the colour
as the Rapaport Diamond Report, The Diamond scale however (see below for more information
Registry, Wholesale Diamond Price List and on grading diamond colour), you move into ‘fancy
Ajediam Antwerp Diamonds Monthly. Institutions coloured’ diamonds. These diamonds come in a
have varying standards which can be used in range of colours and hues caused by differences
identification and pricing. in their formation. ‘Fancy coloured’ diamonds
are more expensive than their clear counterparts
The highest returns seen in the diamond and as such represent a better investment
investment market have come from ‘fancy opportunity as supplies remain sparse and
coloured diamonds’ which can be yellow, blue, demand grows for these beautiful diamonds
pink or green. Some of these coloured diamonds which are so unlike any other.
have doubled in price in recent years due to a rise Demand for investment grade diamonds is
in demand and a decrease in supply. The largest already outstripping supply, according to
producer of coloured diamonds is the Argyle Mine some industry experts this has been the case
in Western Australia which is operated by Rio for the past 5 years. Diamonds have a number
Tinto. With this mine set to close around 2016- of properties which make them an attractive
2020, it is expected that the supply of coloured alternative investment.
diamonds will be affected which will in turn affect
prices.

Diamond shape plays a big part in diamond value Wealth Preservation

with rounded diamonds as the most renowned Historical performance of diamonds clearly
shape of diamond. This is because they are demonstrates that diamond prices are trending
the most common shape used in engagement upwards as supply lines are stretched and
rings. The demand for rounded diamonds demand increases.
for engagement rings gives them the highest
liquidity and makes them the easiest to resell. International Value
Rounded brilliant diamonds are considered the A diamonds value is recognised across the
most sparkly and usually display the diamonds globe and is not affected by economic turmoil,
qualities to its greatest potential. quantitative easing or political unrest.

Low Risk
A diamond will always have a value. It cannot
become insolvent and cannot be damaged.

Transferability
With no official ownership records diamonds can
be easily passed from one generation to the next
without necessarily incurring charges.
 UNDERSTANDING DIAMONDS

All diamonds purchased for investment purposes important of the four C’s. The angles and finish
should be accompanied by a grading certificate of any diamond are what determine its ability
or dossier. This certificate outlines the findings to handle light. A good cut gives a diamond its
of a professional and unbiased examination of brilliance.
the diamond’s attributes. It will validate the carat
weight, colour, clarity and cut grades and contains
the diamond’s exact measurements. Hanwood
Holdings deal exclusively in diamonds graded
by one of the following: Gemological Institute
of America (GIA), International Gemological
Institute (IGI), American Gem Society (AGS) or
the European Gemological Laboratory (EGL).
A certificate or dossier is not the same as an
appraisal. Although a certificate will outline the
characteristics of a diamond, it will not place a
monetary value to that diamond.

There are four factors that determine the cost of

a diamond. These factors are widely known as
Anatomy of a diamond
“the four C’s” and are colour, clarity, cut and carat
weight.
• Diameter. The width of the diamond as
Carat weight. A carat is the unit used to weigh a measured through the girdle.
diamond and is equal to 200 milligrams (0.2g). • Table. The large, flat top facet of a diamond.
One carat is subdivided into 100 “points” meaning • Crown. The portion of a cut gemstone above
that a diamond weighing half a carat weighs 50 the girdle
points. • Girdle. The narrow rim of a diamond that
separates the crown from the pavilion. It is the
The word “carat” is taken from the carob seeds largest diameter to any part of the stone.
that were used in ancient times to balance scales.
• Pavilion. The portion of the diamond, below
These seeds are so uniform in shape and weight
the girdle. It is sometimes referred to as the
that even today’s sophisticated instruments
base.
cannot detect more than three one-thousandths
of a gram difference between them. • Culet. The tiny facet of the pointed bottom of
the pavilion, which is the portion of a cut gem
The process of diamond formation in the earth’s below the girdle.
crust happens very rarely and the natural • Depth. The height of the gemstone, from the
materials required are found only in very small culet to the table.
amounts. It is for this reason that there are so few
large diamonds and why larger diamonds have a When a diamond is well-cut, light enters through
greater value per carat. The price of a diamond the table and travels to the pavilion where
rises exponentially relative to its carat weight. it reflects from one side to the other before
reflecting back out of the diamond through the
Diamond cut. The cut of a diamond is very table. The flashing, fiery effect this light creates
different to the shape of a diamond. While shape is diamonds brilliance and what makes these
refers to the outward appearance of the diamond, previous stones so mesmerising.
the cut is a reference to the reflective qualities of
the diamond. Diamond cut is perhaps the most
 ANATOMY OF A DIAMOND

Gemologists have developed a complex formula to find the ideal cut and maximise brilliance. These
formulae involve the diamonds proportions, most importantly how the depth compares with the
diameter, and how the diameter of the table compares with the diameter of the diamond. These
differences in proportion can be difficult to discern for the casual observer which is why several
grading methods have been developed to help consumers determine the cut of a particular diamond.

These are:

Ideal Cut
This cut is intended to maximise brilliance, and the typically smaller table sizes of these diamonds
have the added benefit of creating a great deal of dispersion or ‘fire’ as well. This category applies only
to round diamonds.

Premium
Premium Cut diamonds are intended to provide maximum brilliance and ‘fire’.

Very Good
These diamonds reflect most of the light that enters them, creating a good deal of brilliance. With
these diamonds the cutters have chosen to stray slightly from the preferred diamond proportions
in order to create a largest diamond. The result is that these diamonds fall slightly outside of some
customers’ preferences in terms of, for example, table size or girdle width, though, in many cases many
of the parameters of diamonds in the range will overlap with certain parameters of diamonds in the
Ideal or Premium ranges.

Good
Diamonds that reflect much of the light that enters them. Their proportions fall outside of the
preferred range because the cutter has chosen to create the largest possible diamond from the original
rough crystal, rather than cutting extra weight off to create a small Premium quality diamond.

Fair & Poor

A diamond graded as fair or poor reflects only a small proportion of the light that enters it. Typically
these diamonds have been cut to maximise the carat weight over most other considerations.
 DIAMOND CLARITY

The clarity of a diamond is determined by the number, nature, size, position and colour of the internal
characteristics otherwise known as ‘inclusions’ and surface features referred to as ‘blemishes’.
The fewer inclusions and blemishes, the greater the clarity and the more valuable the diamond. A
diamond’s clarity is graded using 10x magnification under high-quality lighting by an experienced
grader. The final clarity grade is usually determined by how easily the blemishes and inclusions are
seen by the grade.

Diamond clarity grades are as follows:

• F/Flawless. The diamond is completely devoid of inclusions and blemishes

• IF/ Internally Flawless. Minute blemishes, internally flawless
• VVS1-VVS2/ Very very slightly included. Very very slight inclusions that are nearly invisible even to
experienced graders.
• VS1 – VS2/ Very Slightly Included. These diamonds include very small flaws that can be seen only
by experienced graders
• S1 – S2/ Slightly Included. Flaws are invisible to the naked eye but can be seen under magnification
• I1 - I3/ Included. The flaws can be seen by the naked eye and hampers quality.
 DIAMOND SHAPES

Diamonds are natural crystals of varying shapes and sizes. A skilled diamond cutter will
take a rough diamond and produce a diamond of the greatest size with the fewest flaws
and the most brilliance.

Round Brilliant Diamonds

This shape has set the standard for all diamond shapes and accounts for
more than 75% of diamonds sold today. Its 58-facet cut, divided among its
crown, girdle and pavilion, is calibrated through a precise formula to achieve
the maximum in fire and brilliance.

Oval Diamonds
An even, perfectly symmetrical design popular among women with small
hands or short fingers. Its elongated shape gives a flattering illusion of length
to the hand.

Marquis Diamonds
An elongated shape with pointed ends inspired by the fetching smile of the
Marquise de Pompadour and commissioned by France’s Louis XIV, who
wanted a diamond to match it. It is gorgeous when used as a solitaire or
when enhanced by smaller diamonds.

Cushion Cut Diamond

An antique style of cut that looks like a cross between an Old Mine Cut (a
deep cut with large facets that was common in the late 19th and the early
20th centuries) and a modern oval cut
Pear Shaped Diamonds
A hybrid cut, combining the best of the oval and the marquise, it is shaped
almost like a sparkling teardrop. It also belongs to that category of diamond
whose design most complements a hand with small or average length fingers.
It is particularly beautiful for pendants or earrings.

Emerald Cut Diamond

This is a rectangular shape with cut corners. It is known as a step cut because
its concentric broad, flat planes resemble stair steps.

Heart Shaped Diamonds

This ultimate symbol of romance is essentially a pear-shaped diamond with a
cleft at the top. The skill of the cutter determines the beauty of the cut. Look
for a stone with a well-defined outline.

Trilliant Diamonds
This is a spectacular wedge of brittle fire. First developed in Amsterdam,
the exact design can vary depending on a particular diamond’s natural
characteristics and the cutter’s personal preferences. It may be a traditional
triangular shape with pointed corners or a more rounded triangular shape
with 25 facets on the crown, 19 facets on the pavilion, and a polished girdle.

Princess Cut Diamond

This is a square or rectangular cut with numerous sparkling facets. It is a
relatively new cut and often finds its way into solitaire engagements rings.
Flattering to a hand with long fingers, it is often embellished with triangular
stones at its sides.
 COLOUR

A diamonds colour is measured on a scale ranging from D (no colour present) to Z (deeply coloured).
Beyond Z is inclusive of diamonds that have rich and vibrant colours referred to as “fancy colours”.
These ‘fancy coloured’ diamonds are often more expensive than colourless diamonds due to their
beauty and rarity. Diamonds of known colour are used as comparison stones for colour grading other
diamonds.

The colour of a diamond is the result of it’s composition and cannot be changed. A colourless diamond
allows more light to pass through than a coloured diamond and therefore emits more sparkle. The
formation process of diamonds is such that only a few, rare diamonds are truly colourless or ‘fancy
coloured’. With the exception of ‘fancy coloured’ diamonds which are very rare and expensive, the
whiter the diamonds colour, the greater its value.

Fancy coloured diamonds are created through slight differences in the formulation process. Pink and
red stones are the result of vast pressure, blue diamonds are produced through the inclusion of Boron
in the formation, hydrogen causes violet hues and yellow and orange tints are created by the presence
of nitrogen. These irregularities occur so rarely that fancy coloured diamonds are very rare and
therefore very expensive.

The extreme rarity of ‘fancy coloured’ diamonds grows better recognised and more widely envied
every year, yet the supply of stones remains miniscule. It is because of this that the value of ‘fancy
coloured’ diamonds continues to rise, whether they are newly-cut or long held antiques.
 WHY INVEST IN FANCY COLOURED DIAMONDS?

Ordinarily as the demand for a product increases the price rises. This in turn attracts new suppliers
who saturate the market with a similar product which in turn causes the price to return to a lower
level. This very basic law of supply and demand does not apply to coloured diamonds because
each and every one of them is truly unique. Fashioned by nature over many millions of years each
coloured diamond, no matter its size or hue, has its own shade of colour and its own unique quality
and therefore inherent value. The availability of Fancy Coloured Diamonds is minute in comparison
to production levels with only 0.001% of diamonds in circulation falling into this category. Moreover,
fine coloured diamonds have no fixed price, and as with paintings and fine art, set rules do not apply.
Their true value will only be determined when they are sold.

Investing in rare coloured diamonds is a long-term investment. Fancy Coloured Diamonds are the
most valuable gemstones on earth as determined on a price per carat basis. Research indicates that
only one in every few hundred thousand diamonds possesses enough natural colour to be referred
to as a Fancy Coloured Diamond. For this reason, Fancy Coloured Diamonds are purchased almost
exclusively for the intensity and distribution of the diamonds colour, as opposed to white or colourless
diamonds, where the cut proportions and clarity are the primary indications of value. Therefore as a
general rule the more intense the colour, the rarer and therefore the more valuable the diamond is.

With no new significant diamond mine discoveries in the last two decades and expectations rates
as slim to none. Prices have continued to increase at approximately 15-25% year on year; larger,
rarer stones have seen considerably stronger performances and in some cases have doubled original
estimates at auctions.
 GLOBAL DEMAND

The global demand for diamonds is set to continue to rise as emerging markets, predominantly China
and India, continue to purchase rare fancy coloured diamonds in order to protect and increase their
wealth.

There are numerous reasons why investment graded coloured diamonds have not fallen in value for
the past 30 years. The main reasons are supply and demand fundamentals.

• Coloured diamonds are indeed rare; so much so that for every 10,000 carats that are mined, a
mere one carat may possess fancy colour.
• Gareth Penny, ex Managing Director of De Beers was quoted in 2010 as saying that “if we continue
to diamond mine at this rate we shall run out within 20 years”.
• Most mines are past peak performance; mining firms are actually cutting back in production to
extend the life time of their mines. Indeed, The Argyle Mine, which supplies 90% of the world’s
Pink Diamonds, is scheduled to close in 2018 and The Ellendale Mine which supplies the majority
of the world’s Fancy Yellows is to stop production in 2014.
• Over the past 25 years more than 12,000 kimberlite deposits have been discovered throughout the
world and less than 1% has contained enough diamonds to become economically viable. (Source
Petra diamonds)
• Out of 170 diamond mining companies there are only 25 in production. (Source Bloomberg)
• Diamonds have “the best fundamentals” said Evy Hambro, who manages the $6.6 billion World
Mining Fund in London for Merrill Lynch. “The gap between supply and demand is much greater
compared to other commodities’. (Source Bloomberg)
• On average about 250 tons of ore has to be mined and processed before a mere 1 carat diamond is
discovered.
• At the Ellendale mine in Australia, which is the world’s largest producer of yellow diamonds, the
mine on average only produces in the region of 20,700 fancy yellows a year and the number of
intense and vivid yellows are considerably less. (Source Telegraph)
• In the case of blue diamond’s approximately 3-4 million tons of ore have to be crushed and
processed potentially to find a 1 carat blue diamond.
• Due to their rarity and beauty, coloured diamonds have been in demand for thousands of years.
• Demand from India and China is expected to rise 20% each year for the next 5 years, catching up
with America as a major importer of polished stones. (Source De Beers)
• Tiffany & Co in 2010 agreed a 25% price increase for yellow stones from their supplier in order to
incorporate yellow diamonds in their own jewellery range. (Source Tiffany & Co)
• Institutions and sovereign nations are purchasing diamonds as a store of wealth and a hedge
against economic uncertainty and market volatility.
• “Diamonds could very well outperform base metals in the coming years” said Andrew Ferguson,
who manages $313 million at New City Investment Managers in London. “Given the huge increases
in demand and the imbalances in supply, I expect good returns.” (Source Bloomberg)
 PINK DIAMONDS AS AN INVESTMENT

Even more so that white diamonds, each pink Fancy Vivid Purplish Pink is the most sought after
diamond is uniquely different. Because of this hue in pink diamonds due to its extreme rarity.
there is no price list that determines the value In fancy coloured diamonds, there are often
of pink diamonds. Prices tend to fall in a range 1-2 secondary colours in addition to their main
associated with the diamonds position on the colour. In pink diamonds these are most often
colour scale but prices are not always the same purple, brown or orange. Pink diamonds with
for similar stones. Paler pinks with secondary secondary colour will generally cost less than
hues are more common and therefore cheaper those that are pure pink.
than pure and intense pinks. For this reason
buyers should focus on colour when considering
an investment. Carat weight, hue and intensity
determine the value of a pink diamond. Clarity
and cut aren’t as important due to the extreme
rarity of pink diamonds. Even I1 pink diamonds Diamond buyers and investors tend to choose
are sought after due to the extreme rarity of pink smaller intense pink coloured diamonds as
diamonds in general. opposed to the larger lighter colour for the same
When we talk about Pink Diamonds, the work price. For investment reasons, the smaller more
“Pink” refers to diamond grading hues that range intense pink diamonds are worth more per
from reddish purple to orange. Difference in tone carat than larger diamonds with weaker colour
gives a diamond is pink appearance. saturations. 1-2 carat intense pink diamonds are
in the most demand and make for an excellent
Pink diamonds are graded as follows: investment. Investors on a budget tend towards
smaller (.25cts-.80cts) intense or vivid pink
• Faint Pink diamonds for similar percentage returns.
• Very Light Pink The number of newly mined pink diamonds
• Light Pink falls every year. Increases in demand and the
• Fancy Light Pink relative short supply indicate the opportunity
• Fancy Pink for significant price increases in the very near
• Fancy Intense Pink future. Pink diamonds have already seen an
• Fancy Dark Pink incredible upward trend in prices with their value
• Fancy Deep Pink having nearly doubled every 5 years and never
• Fancy Vivid Pink decreased in value.
 WHY ARE PINK DIAMONDS SO RARE?

Pink diamonds are rare for a number of reasons

The first of these reasons is the unusual way in which pink diamonds are created in the earth’s crust.
The process that creates the natural colour saturation of pink and purplish hues is so unusual and rare
that even scientists cannot agree on exactly how or why these particular diamonds are coloured like
they are. Pink diamonds experience high heat and pressure during their creation which affects their
structure in a process scientists call “plastic deformation”. This process affects the crystal’s ability to
absorb light giving them their pink, purple and brown colour tines. This phenomenon is extremely
rare.

The world’s primary pink diamond producer is the Argyle Diamond Mine in Western Australia. The
Argyle Mine produces over 90% of the world’s pink diamonds. Even in the Argyle Mine however, pink
diamonds are very rare. It is estimated that an entire year’s worth of production of pink diamonds
that are over half a carat would fit in the palm of your hand.

The final reason for pink diamond rarity is the fact that The Argyle Mine is estimated to be fully
exhausted within the next ten years. In light of these reasons it isn’t hard to understand why natural
pink diamonds cost up to 200% more than colourless white diamonds.
 BUNDLE OPTIONS

Option 1 Option 2
Total option weight 0.50 to 0.75 Ct Assorted pink Total option weight 0.90 to 1.25 Ct Assorted pink
and blue stones and blue stones
Price £5,000 Price £10,000
Brokerage fee £99 Brokerage fee £125
Secure Transportation Fee £200 Secure Transportation Fee £200
Storage fee (1%) £50 Storage fee (1%) £100
Total amount payable £5,345 Total amount payable £10,425

Option 3 Option 4
Total option weight 2.25 to 2.75 Ct Assorted pink Total option weight 4.5 to 5.5 Ct Assorted pink
and blue stones and blue stones
Price £25,000 Price £50,000
Brokerage fee £312.50 Brokerage fee £625
Secure Transportation Fee £200 Secure Transportation Fee £200
Storage fee (0.5%) £250 Storage fee (0.5%) £250
Total amount payable £25,637.50 Total amount payable £51,075

Exit Strategy

As with any investment, it is important to realize a return at the right time and to be aware of the
various exit strategies available to you before you invest.

Hanwood Holdings recommends that clients remain in the market place for at least 2-5 years to
realise a profit. After this time you can exit the market place by selling your diamonds to any number
of private investors, collectors, auction houses (eg Rapaport, www.diamonds.net), hedge funds and
jewellers.

Hanwood Holdings can also facilitate a suitable buyer for your investment.
Quotes

‘ There never seem to be enough to go

around, which makes my job that much
harder. Whether it’s their visual appeal,
the prospect of a big jump in value, or just
‘ In the long term, De Beers asserts that the
fundamentals of the diamond industry
remain strong as demand will continue to
outstrip supply.
the desire to own something that almost
nobody in the world possesses, these
have become the gems that everyone
covets.

‘ By 2016, global demand for diamonds will

outstrip supply by 7 million carats.”
(Comparable to the annual output of a
massive mine.)
‘ There are more and more private collectors,
clients looking for new investments. They
are looking for top, top quality gem stones,
to put their money into something that will
not melt.

‘ While the supply of new diamonds is not

expected to rise, the demand from India
and China is expected to increase
steadily.
‘ When times are bad, diamonds can hold
their value better than real-estate and have
the advantage of being portable.

‘ Diamonds have the best fundamentals

[because] the gap between supply and
demand is much greater compared to
other commodities.” $6.6 billion World
‘ Diamonds have emerged as a haven
investment alongside favourites gold and
the Swiss franc, with surging demand from
Asian buyers driving prices of the precious
Mining Fund for Merrill Lynch. stones.
Hanwood Holdings
established since 1999

UK National Rate : 0845 8623090

www.hanwoodholdings.com
[email protected]