Why Are Auction Diamond Sales Breaking Records?

We publish courtesy of JCK online

Author: Russell Shor, GIA senior industry analyst

Provided by the Gemological Institute of America.

The upcoming 2011 jewelry auction season promises more record-breaking large diamonds and top fancy colored diamonds.  Even as the world economy is still recovering from the economic crisis of 2008-9, it seems the wealthy cannot get enough of these stones. They helped Christie’s and Sotheby’s—which together account for nearly 90 percent of the top jewelry auction market—achieve record sales last year.

Christie’s reported its jewelry sales at $429 million in 2010, easily topping the previous record of $395 million set in 2007. Sotheby’s 2010 jewelry sales totaled $405 million, also a record. And the reach of this success was worldwide: Christie’s reported that North America ($130.5 million), Hong Kong ($163 million) and Europe ($135.5 million) were all records, as well.

The 2011 season began in earnest and details of several major stones coming up for sale are circulating. For example, a GIA-graded 10.09 carat Fancy Vivid purple pink diamond is estimated to bring $15 million— nearly $1.5 million per carat. And, an unmounted, 56.15-carat heart-shaped D color, Internally Flawless diamond, also graded by GIA, is expected to fetch between $9 million and $12 million.

When the financial crisis struck the world economy in the fall of 2008, the major auction houses, like every other business, pulled back to assess. As the crisis deepened in December 2008, however, the Wittelsbach Blue, then a 35.56 carat Fancy Deep grayish blue diamond,sold for $23.4 million at Christie’s—the highest price ever paid for a diamond at auction.

After that sale, Christie’s and Sotheby’s have achieved near-record and record prices for top fancy colored and colorless diamonds at numerous sales around the world.

Examples of record-breaking diamonds include:

  • 24.78-carat Fancy Intense pink diamond that doubled the all-time record set by the Wittelsbach (November 2010)
  • A five-carat Fancy Vivid pink diamond that set a per carat record price of $2.1 million (October 2009)
  • A square-cut 32.01 carat D Internally flawless that established a record per-carat price of $240,000 for a colorless diamond (October 2009)

Auction house executives and industry observers agree on a number of reasons why such diamonds can achieve record prices during a period of economic hardship: the international reach of the auction houses; the rarity of top gems and the greater number of private buyers going to auction.

On the first point, whether conducted in the main centers of Geneva, New York or Hong Kong, auctions now attract a worldwide clientele.

Indeed, Hong Kong, a niche venue a decade ago that specialized in jade and Chinese art, was Christie’s leading jewelry sales location in 2009 and 2010. In addition to the above-mentioned five-carat Vivid pink, a 5.16 carat Fancy Vivid blue, internally flawless diamond sold for $6.14 million. Many of the top lot buyers were Chinese business people venturing internationally for the first time.

The Geneva and New York sales also turned in record numbers. Sotheby’s Nov. 16, 2010 Geneva auction, which featured that $46 million pink diamond, was the first jewelry auction ever to top $100 million total. The renowned London jeweler Laurence Graff bought that legendary pink, but other lots went to buyers from 30 countries.

The Bulgari Blue, which included a triangular-cut 10.95 carat Fancy Vivid blue diamond, went to an Asian buyer for $15.7 million after a spirited battle between several bidders at Christie’s Oct. 20, 2010 New York sale.

And Sotheby’s New York sale in December 2010 sold 100 percent and brought in $53.2 million. All of its top 10 lots, which were diamonds, sold for more than $1 million each.

A second reason for the auction houses’ success is the perceived rarity of these top diamonds, especially fancy colored blues and pinks. Of the millions of diamonds mined each year, only .001 percent can qualify as fancy colors and only a handful can achieve the top grades of Intense and Vivid. An even smaller percent are larger than one carat, let alone five carats. So the auction houses deal in true rarities, whether newly mined diamonds or historical stones like the Wittelsbach, which was owned by Bavarian royalty and traced back almost 400 years to Moghul India.

A third reason is the rise of the individual buyer. In the past, dealers were the majority of top-lot buyers at jewelry auctions. Today, individuals account for more than half of such sales. Auction house executives say these buyers range from collector-connoisseurs who seek the very best stones, to investors who believe their extreme rarity, coupled with rising demand, will continue to push up the value.

“In this new climate, large colored and colorless diamonds, rare gemstones, and signed jewels are attracting an ever-expanding community of collectors and investors from around the world,” François Curiel, international head of Christie’s jewelry department, noted recently.

There is a chance the Wittelsbach diamond may have another go at the record books. Graff, who also purchased that $46 million pink diamond (mentioned above), had the Wittelsbach recut down to 31.06 carats to improve its color, clarity and symmetry. He sent it back to GIA for grading nearly a year after he purchased it. The diamond, renamed the Wittelsbach-Graff, is now graded Fancy Deep blue and the clarity was improved to internally flawless. It is unlikely that Graff will sell the famed diamond at auction, preferring instead to meet his clients in the privacy of his New Bond Street salon.

 

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Industry Analysis: Holiday Sales Off to a Strong Start

We publish courtesy of Gems & Gemology GIA Insider

Author: Russell Shor, Senior Industry Analyst

 

This 27.19 ct D-IF dimaond sold for $3.66 million at Sotheby's Dec. 9 Magnificent Jewels auction in New York. Photo courtesy Sotheby's.

 

 

 

This GIA-graded Fancy Intense pink diamond brokle two records: the most ever paid for a gemstone at auction and the highest price per carat ($1.86 million). Photo courtesy Sotheby's

 

 

 

 

The biggest development of this final month of 2010 is the spate of good news. Top jewelry auctions continue to break price records around the world, while the U.S. holiday shopping season indicates that jewelry is high on the buying list for everyday consumers.
One retail analyst group, IBIS World Inc., estimates that jewelry demand will rise 6% over the 2009 season. Earlier in the year, analysts were forecasting increases of around 2-3%, based largely on predictions of increased spending among the wealthiest buyers. Retail jewelers report, however, that sales have risen higher than expected across the board since mid-November.
Press reports and anecdotal evidence indicate that both the volume of sales and the average ticket price will be up significantly over the same period last year, even adjusting for gold price inflation, as consumers feel more comfortable spending. The Centurion newsletter survey reported that some 60% of luxury jewelers have posted double-digit sales increases thus far, while an additional 14.8% were up between 6% and 10%. Tiffany & Co. and Blue Nile have had seasonal gains of 10% and 12%, respectively.
Independent retailers are also optimistic about the season. Traditionally, as much as one-third of their holiday sales take place during the final 10 days before Christmas.
One reason for the better-than-expected retail sales is that most economists are no longer warning about a “double dip” recession. The consensus is that while a struggling job market will remain a drag on recovery, the economy will continue a slow growth through 2011. In addition, U.S. corporate profits have been quite strong the past two quarters, which suggests that those who have jobs may no longer fear losing them or being subjected to cuts in wages and hours.
In Europe, the fiscal troubles of Ireland and possibly Spain have unsettled the European Union. But while the European recovery remains slower, there is no talk of these problems pushing the world back into recession, as was the case last summer when Greece’s problems came to light.
The ultra-wealthy continue to flock to very large colorless and top fancy-color diamonds and extremely fine-colored stones. The Nov. 16 Sotheby’s auction in Geneva was a record-breaker on a number of fronts. It was the first $100 million-plus jewelry auction ever. Nearly half of that total, $46.1 million, went to a 24.78 ct GIA-graded Fancy Intense pink diamond that broke two records: the most ever paid for a gemstone at auction and the highest price per carat ($1.86 million).
The following day, at Christie’s Geneva, two Colombian emeralds sold for extremely high prices: A 25.83 ct octagon-shaped stone went for $1.04 million, while a 9.27 ct Muzo stone drew a winning bid of $824,720.
Sotheby’s Dec. 9 Magnificent Jewels auction in New York broke a sales record for that venue: $53.2 million, with 10 lots selling for more than $1 million. The top lot was a 27.19 ct D-IF diamond that sold for $3.66 million, or nearly $135,000 per carat.
Meanwhile, preliminary reports from the Dec. 13-17 Diamond Trading Company sight put it at about $450-$475 million. Diamond manufacturers hope the encouraging U.S. holiday season, coupled with continued strong demand from India and China, will break the impasse over polished prices that has lasted for six months.
Rough prices have increased far ahead of polished, as cautious retailers and jewelry manufacturers still refuse to pay higher rates. A number of manufacturers, particularly in India, stopped polishing certain sizes, preferring to hold them until prices improve, instead selling from inventory or stones sourced from the secondary market.
Russell Shor
Senior Industry Analyst

 

 

Luxury Market to Grow by Double Digits

We publish courtesy of Gems & Gemology eBrief

Authors: Russell Shor


 

Recovery from the economic downtown has been a painfully slow process for retail jewelers in the U.S. and Europe. The top end, however, is rallying much more quickly, according to a Bain & Co. market study on luxury goods.

The consulting firm predicted that worldwide jewelry sales would rise 13% this year, with the fastest growth (20%) coming from online sales. The report noted that luxury sales in general rose 5% in the first quarter and climbed to 16% by mid-year before slowing a bit in the third quarter. The strongest growth, as expected, is forecast for Asia, but U.S. luxury consumers have returned to the stores and are likely to boost their spending about 12% this year over last.

As if to prove the Bain report, the Oct. 20 jewelry auction at Christie’s New York brought in $52.5 million — 90% by lot and 95% by value — numbers rarely reached even in prosperous times. The top lot, a Bulgari ring featuring a 10.95 ct Fancy Vivid blue diamond and a 9.87 ct G-VS1 diamond, sold for more than $15.7 million. Several pieces with large D-Flawless diamonds broke the $100,000 per carat level. While private Asian buyers took several top lots, most of the jewelry was purchased by Americans.

These auction results underscore a key advantage of the luxury market: it tends to be more international and thus far less dependent on local economic conditions.

Russell Shor
Senior Industry Analyst, GIA Carlsbad

Industry Analysis: Rough Market Stays Hot, Polished Diamonds Lukewarm

We publish courtesy of Gems & Gemology’s G&G GIA Insider

Author: Russell Shor, Senior Industry Analyst

The rough diamond market continues to run much hotter than the polished market. The Diamond Trading Company’s Oct. 4-8 sight, initially estimated at $425 million, increased to nearly $500 million as clients requested additional allocations.
The DTC held the line on prices, but rough sold at tender auctions from other producers and the DTC subsidiary Diamdel was reportedly up 10% or more from the previous month.
Alrosa, the world’s second-largest producer, announced rough sales of $2.53 billion for the first nine months of the year, an increase of nearly 50% over 2008 (the last “normal” year). However, price increases accounted for more than half that figure. The company expects its 2010 rough sales to total $3.3 billion (compared to DTC’s estimated $5.8 billion). Alrosa’s production was mined in Russia, except for about $450 million worth from Angola’s Catoca mine.
At odds with the continued high demand for rough is a very cautious polished market worldwide. As noted in last month’s Insider, buyers at the Hong Kong show were walking away from high polished prices that attempted to recoup up to half the rough increases. In the U.S., retailers are downgrading qualities and sizes to keep costs down.
U.S. retail jewelry sales have been running an estimated 3% ahead of 2009 levels, less than the 4% to 5% forecasted earlier this year.
Deloitte and the International Council of Shopping Centers predict that holiday retail sales overall will hover around 2% to 3% over last year, with jewelry falling within that range.
ZIMBABWE: Kimberley Process delegates will meet next month to determine whether to certify exports of rough diamonds from Zimbabwe’s Marange deposit. Zimbabwe’s government recently auctioned 1.3 million carats under KP supervision. The prices realized, coupled with reports from the area, indicate that the proportion of gem-quality diamonds is more than double the initial KP estimate of 5%. And the amount of near-gem material (destined for India) is reportedly 35%, which rivals Argyle. This means that as much as half the Marange production could be cuttable.
The huge size of the deposit, spread over hundreds of square miles, makes it difficult to properly survey — one reason Marange took the diamond world by surprise. Some estimates claim it could produce 40 million carats annually, which would make it the world’s most productive diamond area.
Ongoing concern over Zimbabwe’s human rights record and the fact the KP approved the rough diamond exports despite a U.S. ban on trade with that nation, is prompting talk of a two-tiered Kimberley Process system.
Proponents of this plan, which the U.S. State Department will reportedly promote at the November KP meeting, say the current system is too narrowly focused on “conflict” diamonds — diamonds sold by rebel groups to fund wars — and does not take into account human rights abuses by recognized governments of producing nations (i.e., Zimbabwe). They are also frustrated with the KP requirement of a unanimous vote by its members before it can initiate any action.
Opponents argue that a two-tiered KP system would create a “favored” diamond track for large producers such as De Beers and Rio Tinto and for branded Canadian diamonds, while casting unwarranted suspicion on diamonds from smaller producers.
MACRO: Spending Pulse noted that through the first nine months of 2010, online retail sales for all merchandise categories posted a 7.8% year-over-year growth. Online jewelry sales for September, however, fell 5.9% against the previous year. The luxury market research group also noted that September was the only month this year to record negative growth for the online jewelry category. Blue Nile, the largest online jewelry seller, reported a year-on-year sales increase of 9.7% for the second quarter (ending July 4) but has noted slower third-quarter sales (not yet announced).
The world’s two fastest-growing economies, China and India, are also increasingly important diamond markets. Both are on target for economic growth of about 10% this year, according to an International Monetary Fund (IMF) report.
The IMF’s latest World Economic Report says the Chinese economy will grow 10.5% in 2010 and 9.6% in 2011, driven by domestic demand. India’s gross domestic product will expand 9.7% in 2010 and 8.4% in 2011, as a result of strong industrial production.

The IMF noted that mature Western economies, continuing their slow recovery from the economic downturn, are forecast to grow 2.7% this year and 2.2% in 2011.

Industry Analysis: High Demand, Hard Bargaining at Hong Kong Show

We publish courtesy of GIA’s Gems & Gemology EBrief

Author: Russell Shor

The Hong Kong Jewellery and Gem Fair opened Sept. 14 with heavy traffic, high expectations and hard bargaining on prices.

Although China is the world’s fastest-growing market and largely unaffected by the world economic slump, buyers were cautious about prices, especially in the diamond pavilion, where considerable down-trading was evident.

Exhibitors at the Asia World Expo Center near the airport reported that demand was fairly strong for diamonds, but that buyers were looking mainly for middle- and lower-clarity goods — a clear break from the past, when they would rarely buy grades below VS1.

Even the rarefied world of top fancy-colored diamonds witnessed a cautious approach, as exhibitors reported that buyers have been bargaining hard on prices and then walking away (perhaps to return before the show ends).

“A lot of stones never make it to the (cutting) wheels today,” said one dealer. “This is the case with big stones and top qualities — D and E colors and high clarities — where prices may be better later on.”

Colored stones were also in demand, but again dealers reported that truly top goods were extremely hard to find because of a prevailing belief that prices will improve.

After several well-publicized thefts during the first day of the show — including a large diamond and an emerald necklace — organizers increased security, requiring buyers at the gemstone pavilion to provide a photo ID along with their show credentials.

Zimbabwe: In other news, Zimbabwe sold a second lot of diamonds from its controversial Marange deposit this week. Details about the prices paid or the quality of diamonds in the sale were not released by Insider press time. This sale follows the 900,000 carats sold at the August tender, which reportedly brought some $43 million.

The rough diamonds had been embargoed until last month, when Kimberley Process officials who investigated conditions at the four Marange mining areas issued a decision that KP requirements were being met.

Most of the buyers at the September sale were diamond manufacturers from India and rough brokers from Dubai.

An estimated four million carats are stockpiled at Marange, and new production could total several million carats a year.

Russell Shor, Senior Industry Analyst

Rough Diamond Price Hikes

The following brief appears courtesy of Gems & Gemology‘s G&G eBrief

Intellectual Property: Gemological Institute of America and Gems & Gemology

Image courtesy of De Beers Diamond Promotion Service.

Author: Russell Shor (Senior Industry Analyst, GIA Carlsbad)

Dealers are seeing a slowing of price increases for rough diamonds. Photo © De Beers Diamond Promotion Service.

After a year of steep increases, rough diamond prices appear to be moderating, according to major diamond manufacturers. This may help reduce the growing impasse between retailers wary of scaring off consumers in a fragile economy — and manufacturers who are obliged to pass along the higher prices.
 
There are four reasons behind this moderation:
Manufacturers are finally listening to analysts’ concerns that rough prices are too high. Retailers and jewelry manufacturers have been leaving deals on the table rather than accept the hefty increases. This is why the DTC lowered prices on some types of commercial-quality goods at the June sight.
The major rough buyers — the relatively small group of players who act as a “secondary cartel” in the rough market and have been responsible for most of the speculation of the past year — are now holding back to gauge the market’s ability to absorb more price increases. These players buy more rough then they need for their own activities and stock it until clients come, bids in hand, to take it. They are driven by the belief that rough supplies will grow shorter over time and the value of their stocks will appreciate.
Some diamond manufacturers are still concerned that the reduced demand for rough reflects a “second dip” in a slowing market.
Over the shorter term, June and July are vacation months in India and Israel, when manufacturing typically slows and there is less demand for rough.

Russell Shor
Senior Industry Analyst, GIA Carlsbad

Ruby and Sapphire Markets Transformed

The following report is published courtesy of Diamond World

Adapted by Russell Shor, GIA senior industry analyst

The Gemological Institute of America has furnished an article on the progressive changes observed in the adaptation of rubies and sapphires into the gem and jewelry industry, as follows:

Ruby and sapphire are among history’s most coveted gems, with fashioned stones dating back to ancient Greece, India, and Asia. Traditionally, they have been scarce and expensive. The past 25 years, however, have brought radical changes in the market for rubies and sapphires, stimulated by huge increases in supply. Today, they are much more readily available in a full range of prices. This is because of the discovery of large deposits around the globe and the development of treatments that could consistently transform unattractive material into beautifully colored gems. By 2009, ruby and sapphire accounted for about one-third of all colored stone and pearl sales worldwide.

The lead article in the Winter 2009 issue of Gems & Gemology, Russell Shor and Robert Weldon’s “Ruby and Sapphire Production and Distribution: A Quarter Century of Change,” chronicles these new sources and treatment methods and how they coincided with new sales outlets, such as television and online shopping. It also examines how corundum supplies and prices have been buffeted in recent years by political events and social concerns.

Myanmar (formerly Burma) has been at the center of the ruby story for centuries. The ancient Mogok deposits, the traditional source of the world’s finest material, have continued to produce, while a new discovery, Mong Hsu, began to yield large quantities of commercial material during the mid-1990s. By the early 2000s, the country was supplying an estimated 90 percent of the world’s rubies.

Other sources—Kenya, Vietnam, and Madagascar—also began to supply the market, and ruby became fairly plentiful during the 1990s and early 2000s. Most recently, in 2007, fine stones began to emerge from a new locality in Winza, Tanzania. Prices for medium- and commercial-quality material eased considerably, and with larger supplies available at attractive prices, designers began to turn out lines of mass-market ruby jewelry.

Changes in the sapphire market have been even more profound. While traditional sources such as Kashmir, Thailand, and Cambodia were becoming mined out, new production from Sri Lanka, Australia, Madagascar, and (briefly) the U.S. state of Montana poured into the market.

In earlier times, much of this material would not have been mined because it was either too pale (Sri Lanka) or too dark (Australia), or had a less-commercial color (Madagascar). But gem dealers, primarily in Thailand, perfected heat-treatment processes that could consistently improve the colors of these goods. Thus, millions of carats of previously unusable sapphire were transformed into attractive gems.

The treatments, while a boon to the gem market, were also controversial, primarily because many dealers failed to disclose them to buyers. In time, the trade generally accepted straight heat treatment—subjecting ruby and sapphire to high temperatures under controlled atmospheric conditions. But in 2001, treaters took that process one step further, creating a furor that resounds today.

That year, an abundance of pinkish orange “padparadscha” sapphires entered the market. Because such sapphires are normally quite rare, the sheer quantity of these stones prompted gemologists and dealers to suspect a new form of treatment. Eventually they discovered that beryllium was being diffused into the stone during the heating process, radically altering the perceived color. Beryllium diffusion was subsequently used to modify blue and other colors of sapphire, as well as ruby, expanding the controversy and attracting a spate of negative press reports.

Also impacting the market were the large quantities of attractive ruby that began to show up in the early 2000s. Much of the material, it was quickly discovered, had been filled with lead glass to conceal abundant fissures in cloudy pink sapphires that were otherwise unsuitable for gem use. Fortunately, this treated material is easily identified with magnification.

International politics also affected the ruby and sapphire trade. To censure Myanmar for human rights abuses, the U.S. Congress enacted the Burmese Freedom and Democracy Act in 2003, which banned trade in gems and other products from that country. But the ban left a huge loophole that allowed the import of gemstones if they had been cut in a third country. The vast majority of Burmese gems were cut in neighboring Thailand, so the ban had little real effect.

As repression in Myanmar increased, however, the European Union enacted its own ban on Burmese gems, followed in 2008 by a tightening of the U.S. measure that effectively banned all Burmese ruby and jadeite imports regardless of where they were cut. As a result, more than 50 ruby mines closed down in Myanmar, while buying by foreign dealers reportedly fell by more than half in the latter part of 2008.

The need to identify which rubies were Burmese highlighted another issue: country of origin. Colored stones from certain localities, such as Mogok ruby and Kashmir sapphire, have traditionally commanded the highest premiums. Although many feel that gemstones should be judged by individual beauty rather than source, recent technological advances have given laboratories the tools needed to make more accurate country-of-origin determinations.

As Burmese rubies were being removed from the market, Madagascar, the world’s largest sapphire producer in the mid-2000s, abruptly banned export of all rough gem materials in early 2008. A Thai delegation visited the country to negotiate an end to the embargo, but failed to secure an agreement. The ban was lifted in mid-2009 after a coup toppled the president. By then, however, the number of miners working the vast Ilakaka sapphire deposits had shrunk to one-fourth its peak.

Despite these challenges, demand for ruby and sapphire grew strongly during the 1990s and into the 21st century. One 2009 study reported that they accounted for almost one-third of the $10.3 billion worldwide retail market for colored stones and pearls. A second 2009 study, by mining company True North Gems, broke the numbers down further: ruby accounted for $2.1 billion, sapphire $800 million (with $58 million of that pink sapphire). Note that sales figures for sapphire are lower because of the vast quantities of inexpensive lesser-quality and diffusion-treated material in the market. By comparison, emerald sales totaled $1.4 billion.

Looking to the future, the colored stone trade is moving to address growing consumer demand for fair trade goods that meet standards of safe working conditions, fair economic returns to miners and their communities, and environmentally sustainable practices. A number of industry organizations are working with mining operations and gem dealers to hasten progress toward these goals.

The future of the corundum market depends on finding new, economic ruby and sapphire deposits. But the trade’s understanding of treatments and willingness to disclose them will grow ever more important in maintaining consumer confidence, as will awareness of consumers’ desire to own beautiful products that embody positive social, ethical, and environmental values.

Courtesy: GIA