Prices of Diamonds Graded by 3 Different Laboratories

Diamond Grading Laboratory Survey
 
by David Atlas[1], Garry Holloway[2], and Leonid Tcharnyi[3]
August 6, 2004
 
Abstract
 
An analysis of trading prices showed that the trade adjusts prices based on expected strictness of diamond grading reports.
 
To confirm or deny the trades expectation of grading strictness, the authors conducted a small 17 diamond independent survey of GIA, AGS and EGL USA lab grading. The diamonds were anonymously submitted from three different sources.
 
In half the cases AGS clarity grading was one grade stricter than GIA. In two thirds of cases EGL USA color grading was one grade softer but clarity grading in a third of cases was stricter than GIA. Industry opinions were confirmed and by large each lab graded consistently to its own apparent standard, considering the high degree of human subjectivity involved.
 
In conclusion: The study confirmed that business to business Internet listings effectively priced diamonds graded by these laboratories  
This independent survey of GIA, AGS and EGL USA lab strictness and consistency was conducted by anonymously submitting 17 diamonds from three different sources. In half the cases AGS clarity grading was one grade stricter than GIA. In two thirds of cases EGL USA color grading was one grade softer but clarity grading in a third of cases was stricter than GIA. Some myths concerning these labs were not confirmed; variations in grading indicated a high degree of human subjectivity.
 
An analysis of trading prices for the diamonds showed that the trade adjusts prices based on expected strictness of the grading reports.
 
In conclusion: There are brand and price differences between not just diamonds, but also laboratories. An informed buyer can choose a diamond with a more prestigious report and easier resale, for possibly a higher price, or a diamond with a likely lower cost. ----->
 
1. Introduction
 
Diamond prices are dramatically dependant on the 4C's (carat, color, clarity and cut); a difference of only one color or one clarity grade can result in price variations of 3% to more than 25%.
 
For many years, buyers and sellers determined diamond grades by themselves. But in the 1953 the Gemological Institute of America (GIA[4]) established a grading system for color and clarity and began using this system in its independent diamond grading laboratory. Today there are many large and small gemological labs world-wide that offer third party diamond grading services. Trade insiders believe that some labs are stricter and more consistent, while other labs are softer (i.e. give higher grades) or may be less consistent. Consequently it is believed the diamond trade adjusts diamond prices based on the lab that issued grading reports.
 
The only published source of price comparison the authors are aware of, between diamonds graded by different labs, is listed on Polishedprices.com:
 
Certificate Calculation factors according to Polishedprices.com
Certificate Factor
AGS 1.028
CGL 1.000
GIA 1.000
HRD 0.981
IGI 0.944
EGL 0.935
NONE 0.935

 
Today’s consumers are learning more about diamonds and pricing. Websites like Pricescope.com and others have contributed to the public's greater knowledge. Many have learned that diamonds graded by GIA-GTL or AGSL[5] are priced at premiums compared to diamonds with reports from other labs. The current study compares lab strictness but importantly, for the first time that the authors are aware of, this survey includes a pricing and value comparison.
 
The prices of a significant quantity of diamonds, more than 50,000, are publicly listed on-line and GIA, EGL USA[6], and AGS graded diamonds were represented in large enough quantities to be included in this study.
 
The reason for a grading lab to give softer grades is to get more business from diamond manufacturers, retailers or wholesalers who want to increase their profits by selling diamonds given higher grades at higher prices. However, EGL USA has claimed recently to have been grading stricter.
 
This survey is the first in a decade[7] that the authors are aware of, was not intended to prove that any lab is better than another. Diamond grading is a subjective art. The consumers should be aware that a grading report is that labs opinion, and not a fact. This was illustrated by the fact that none of the 17 stones were given the same grade for both color and clarity by all 3 labs. One of Pricescope's main intentions with this survey was to compare the relative trading values of diamonds graded by various labs.
 
discuss
Method of Survey »
 

[1] Accredited Gem Appraisers, Philadelphia, PA
[2] Ideal-Scope.com and Precious Metals, Melbourne, Australia
[3] Pricescope.com, Toronto, ON, Canada
[4] The Gemological institute of America (GIA) is recognized world wide and is a not-for-profit organization. However the GIA-Gem Trade Lab is a very profitable business that reinvests its dividends from grading diamonds and gemstones back into gemological education and gem identification and treatment detection research. According to Pricescope' stats, about 73% of all diamonds listed in the Internet are accompanied by GIA-GTL reports. It is a commonly held belief that GIA-GTL grading reports are the strictest in the industry today.
[5] American Gem Society Laboratory (AGSL) jointly owned by the AGS, a not-for-profit organisation, and a group of AGS investor members. It is known for publishing its own diamond round brilliant cut grading system in 1996 which has established it in a niche in the USA diamond market for AGS Zero or "Ideal Cuts". AGSL reports are also regarded as being very strict and consistent. AGSL graded diamonds are only about 5% of all round cut stones listed in the Internet but comprises about 40% of round diamonds cut to today's "ideal" proportions and finish.
[6] Originally EGL had several franchised labs in different countries (Belgium, Israel and USA). Today EGL-USA is privately owned and operates four labs in USA and Canada. About 23% of all diamonds listed in the Internet are graded by European Gemological Laboratories (EGL); EGL and EGL USA listings are included together. EGL USA has a trademark claim in the courts seeking to stop the importation of diamonds with accompanying EGL reports from outside USA. EGL USA claims to have tightened up its grading standards.
[7] JCK magazine ran a survey in the mid 1990's