How to Evaluate Fancy Color Diamonds

In recent years, a significant shift has occurred in the way professional diamond dealers, retailers and gem collectors evaluate fancy color diamonds. Unlike in previous years, where buyers and sellers primarily relied on the GIA gemological report, today’s evaluations consider the visual assets and unique characteristics of any fancy color diamond as opposed to colorless diamonds that need to follow a strict set of parameters. Instead of solely relying on technical specifications, diamond buyers now analyze the visual appeal of fancy color diamonds. As there could be several fancy color diamonds with the exact grading and description in the report, professionals examine qualities that are not explicitly mentioned, focusing on the beauty and aesthetic attributes of the diamond. This change in approach reflects the growing recognition that the visual characteristics of a diamond play a vital role in determining its demand.

The GIA grading system covers a wide range within each saturation grade, Several key factors have emerged as crucial determinants of price per carat in recent years. Firstly, the richness of color within the GIA saturation, referred to as the “Inner-Grade,” has gained significant importance. This factor considers whether the saturation grade is positioned high or low or within the midrange, which greatly influences its visual allure. Secondly, the “Undertone” of a fancy color diamond has become a critical consideration. Undertone, as opposed to a “color modifier” on the GIA’s color description, refers to subtle color sensation present in the diamond’s body color. Whether it’s a warm tint in a pink diamond or a touch of green in a yellow fancy color diamond, the undertone contributes to the overall color sensation and can significantly impact our expectations from the GIA color description.The closer the color appears to the color description the higher the value will be.

Additionally, the “Color Dispersion” or how well the color is dispersed over the face-up view of the diamond has gained prominence. A high-quality fancy color diamond should exhibit uniform color distribution throughout its surface, ensuring there are no areas with colorless patches. This even dispersion enhances the visual impact and adds to the diamond’s beauty. Furthermore, the correlation between a diamond’s face-up surface and its carat weight has also become a significant factor in evaluations. Buyers and sellers now consider how well the diamond’s size corresponds to its appearance. This factor ensures that the visual impact of the diamond is in harmony with its weight, resulting in a well-proportioned gem.

In conjunction with these changes, the decreasing supply of fancy color diamonds has diminished the importance of traditional parameters such as clarity and blue fluorescence, that used to significantly impact the price per carat of a fancy color diamond. As end consumers have grown more knowledgeable, they understand that these factors have minimal impact on the visual attributes of these rare diamonds. Consequently, the focus has shifted towards appreciating the aesthetic qualities that make fancy color diamonds truly unique and captivating.

Overall, the recent shift in evaluating fancy color diamonds reflects a deeper understanding of their visual assets and the recognition that aesthetics plays a pivotal role in determining their value. By considering factors such as inner-grade, undertone, color dispersion, and face-up appearance, professional diamond dealers can more accurately assess the true beauty and desirability of these exceptional gems.

PRICE EVOLUTION AND BEHAVIOR

Before the 1980s, the buying and selling of fancy color diamonds occurred in a less structured manner. Traders relied on their own perceptions of the value of blue, pink, or yellow diamonds, often based on rumors and gossip about similar stones. This lack of structure stemmed from the absence of a centralized communication and comparison platform, coupled with the inherent difficulty of finding comparable stones. As a result, the pricing and trading of fancy color diamonds heavily relied on individual judgment and subjective evaluations. The introduction of the GIA report as the market standard brought some order to the market. Initially, fancy color diamonds were primarily sent to the GIA for natural grade and color identification, without indicating clarity and fluorescence.
The circulation of fancy color diamonds with GIA reports led to a convergence of prices into a more organized structure. In the 1990s, the vivid grade was introduced, creating another price bracket further emphasizing the richness of color as the primary criterion. Auction catalogs also started featuring fancy color diamonds with estimated prices.
By the end of the decade, the widespread availability of the World Wide Web facilitated the dissemination of exceptional diamond results and clarified price segments. Towards the beginning of the new millennium, the trading of fancy color diamonds expanded. More wholesalers started including color diamonds in their inventories, and clients increased their demand through retailers. This trend has continued to gain momentum to this day. As the industry grew, prices became clearer, enabling the establishment of rational evaluation methods for color diamonds.

The price index

In 2005, the Fancy Color Research Foundation (FCRF) began documenting the wholesale buying prices of yellow, pink, and blue fancy color diamonds on a quarterly basis. Unlike wholesale selling prices, which can vary depending on the client profile of each company, buying prices are relatively consistent. This is because dealers engage in frequent communication regarding buying prices, establishing a level of stability in the market. Buying prices have undergone extensive testing over a significant period and have been proven to provide reliable and stable data inputs. Between the years 2005 and September 2008, the prices of these three primary colors exhibited a moderate increase. However, during the global financial crisis, yellow fancy color diamonds, along with other commodities, experienced a significant drop of ~40%, while pink and blue diamonds faced a comparatively smaller decline of ~10%.

The fancy color diamond market began its recovery in the first quarter of 2009, and from 2010 to the second quarter of 2014, there was a remarkable price surge, resulting in an average increase of 110% within just four years. This surge was primarily driven by robust demand from Chinese clients, benefiting from an economic expansion and their interest in luxury goods worldwide.
Since 2015, prices of fancy color diamonds have displayed minimal volatility. Although yellow diamonds witnessed price spikes in specific categories (intense and vivid diamonds between 1 to 20 carats) between 2020 and 2023, the overall index, which includes pink and blue fancy color diamonds, experienced some areas of softness, resulting in an average increase of 6% for all three colors.

The wholesale buffer

The fancy color wholesale sector has attracted the largest percentage of immigration of new players into the natural diamond business arena. Those who have been visiting diamond trade exhibitions in the last two decades can describe an exponential growth of hundreds of percent in the number of companies displaying color diamonds. An expanding segment reduces the inventory financing burden on each company as it becomes more distributed and balanced. This distribution helps stabilize the market by avoiding excessive inventory accumulation. The presence of multiple wholesalers also fosters healthy competition, promoting fair pricing practices and further contributing to overall market stability. Additionally, it acts as a buffer that absorbs radical price changes when a slow economy hits retail with soft demands. One important factor contributing to the low volatility of the index is the steady and constant growth of fancy color diamonds in the retail sector. As retail demand increases over time, with a large variety of colors and sizes, the demand for color diamonds as a wealth preservation asset acts as an anchor, providing another layer of stability.

Strategic investment in inventory

In terms of retail inventory investment, the non-volatile nature of the fancy color diamond segment creates a sense of comfort for jewelers. It encourages them to invest in a color diamond inventory that will retain its value over time. Unlike colorless diamonds, which often experience sharp price changes and pose a risk to large jewelry inventories, fancy color diamonds demonstrate the opposite. Price stability fosters a conducive environment for retailers to expand their inventory in order to present larger collections with a wider selection to customers. The non-volatile nature of the fancy color diamond segment not only saves from having to re-evaluate the existing inventory but also encourages retailers to make substantial investments with confidence.

RARITY

Whether it is a conversation between two dealers, a dealer and a store, or a salesperson and the end customer, the topic of rarity inevitably arises. For many years, there was a lack of data on this subject, leading to the circulation of a mythical number that filled the void. It was believed that fancy color diamonds occurred in nature at a ratio of 1 in 10,000 compared to colorless rough diamonds. However, this figure is obviously incorrect.
We could not determine when exactly “one in 10,000” became the accepted figure, but it likely gained momentum in the late 1990s, when the need to elevate the rarity factor and reinforce the investment element of fancy color diamonds arose.

Although this number was based on Sydney H. Ball’s quote from the 1930s, because the GIA echoed it into a void repeatedly, it became the only available “statistic” on fancy color diamonds. Surprisingly, “one in 10,000” is still used in most marketing materials related to fancy color diamonds, all based on an incidental statement published by the GIA. John King, a renowned GIA authority in fancy color diamonds who compiled and edited the famous GIA book Gems & Gemology in Review: Color Diamonds, commented on the “one in 10,000” statistic:
“I have always believed the figure comes from very general knowledge and assumptions at a given time and, as much as anything, an effort to create a decent metaphor for rarity. Over time, I believe the industry, looking for direct sound bites, has turned metaphor into ‘fact’.”

Mapping Rarity

According to the Natural Diamond Council, the weight of the average unearthed rough diamond is 0.03 carat (yielding a ~0.01 in the polish), which means that most polished diamonds fall into a weight category that is irrelevant in a discussion about rarity with a consumer. Therefore, any rarity discussion about Fancy Color should focus on diamonds that are large enough to stand alone.
According to FCRF Rarity Report submissions, interest in rarity data deals mainly with diamonds sized one carat and above. Just 20% of submissions for a rarity report regard diamonds between 0.50 to 0.99 carat, which leaves a large number of small stones out of the rarity interest (those below 0.50 carat). We also see a connection between diamonds with a higher gemological grade and the need for rarity data to support their high value.
For example, there are generally more Rarity Report requests for a one carat fancy vivid blue than a one carat fancy light blue.

As for today’s global rough diamond reserves, there are more polished diamonds mounted in jewelry than the estimated number of unearthed rough diamonds. This means that any number that reflects scarcity must include polished diamonds that circulate back from the second-hand market, especially as many of them go through a re-cut that improves their gemological characteristics and enter the market as a new diamond. Between the figures of rough size, the second-hand market, and the actual rarity interest, it seems that the “one in 10,000” metaphor is no longer relevant.

Evidently, the ideal way to address the rarity of fancy color diamonds would be through the prevalence of polished diamonds entering the market over time. Hence, we have to consider the number of polished diamonds by their gemological characteristics entering the market every year, or once every several years, regardless of whether they are unearthed, preowned, or re-cut.

How to Use Rarity

The rarity of polished fancy color diamonds results from two fundamental elements: Those caused by nature and those created by humans. Natural causes impact the initial size of the rough, hue, undertone, intensity, and inclusions arrangement in a diamond. Human decisions impact the shape, final weight, and sometimes even the saturation and clarity of a diamond.
Different planning decisions by different manufacturers have a dramatic effect on a diamond’s outcome. For example, the same 10 carat rough yellow fancy color diamond could be turned into a 5 carat pear shape, SI1 clarity or into a 4.80 carat oval with a VS clarity. Two different outcomes that lead to different rarity results, from the same exact rough.

The rarity question today is an integral part of the conversation around fancy color diamonds, especially during a sale ceremony between a jeweler and a diamond lover. It greatly enhances the storytelling of this luxurious article, and can support the concept of long-term wealth preservation. When it comes to rarity stats, it is important to note that because there are multiple variables, an absolute rarity number cannot be reached. However, it is possible to reach a rarity range, which could in fact, present an accurate picture. Multilayered data that is collected and analyzed makes it possible to assess the approximate number of appearances of most fancy color diamonds over time, which is a vital piece of information that never existed before.
Fancy color diamond collectors are the most savvy buyers in the jewelry space. These collectors are drawn to fancy color diamonds because they are alluring and represent something special that cannot be duplicated. At best, one can buy a diamond with similar characteristics.
Because the approach to fancy color diamonds overlaps with other luxury items such as art, collectible watches, vintage cars, etc.; collectors, nowadays, look for ways to quantify the rarity of their specific item. An art buyer cares only that their Andy Warhol print is one in twelve ever created, while unconcerned with the prevalence of all prints in the world. The owner of the new Patek Philippe with a Tiffany dial cares that his particular model was produced in a series of 170, while indifferent to the fact that his watch is one in a few million ever produced by the brand.
Because sophisticated collectors want to know how special their acquisition is, a meaningful discussion should revolve around this question also when talking about fancy color diamonds. Whether a collector decides to start a jewelry collection with a small fancy yellow or a multimillion-dollar vivid pink, a metaphoric figure like “one in 10,000” no longer tells a story of a specific fancy color diamond, nor does it support the wealth preservation element that collectors seek. Customers are more enthusiastic when a seller puts their stone into a meaningful context that brings out real value. Therefore, for impactful transactions, jewelry sellers may want to adopt a more personalized, relevant, and context-rich approach to rarity.

Source: The Fancy Color Research Foundation