A reflective article on diamond grading reports

[Garry H (Cut Nut)]

I have written a brief article here http://journal.pricescope.com/Articles/35/1/Why-do-we-need-diamond-grading-reports.aspx in the Pricescope Journal.

One of my OctoNus / Helium associates, Janka Mistry, raised this intersting issue the other day:

With the implementation of new technologies current diamond polishing costs are about $35 per carat. Diamond grading reports run to $127 per carat. Does this seem a little strange to you?

I hope this article might raise some interesting discussion.

It is a very brief single page

 

[JohnQuixote]

Thank you for writing that Garry.

In my experience reputable grading reports are prized by internet shoppers. AGS and GIA provide a yardstick of measure that is (arguably) consistent and strict. For instance, a clarity grade of VS or above from either of these labs practically guarantees an eye-clean diamond to a buyer who has only seen the report, but not yet seen the diamond.

Live shopping situations are reversed, because you see the diamond first. In live sitations the report (sometimes the size of a credit card) may be treated as an afterthought.

 

[Serg]

You need explain figure 127$.

Cost labs+ delivery+insurance+?

Cost lab depends from size

for 1 ct diamond Report will has less price( I think near 50-70$)

For 0.3 ct it could be 150$ per carat.

It is not clear from your article

 

[Paul-Antwerp]

I must say, Garry, that I find this a very tendentious article.

Your first observation is wrong. You are comparing the polishing cost per rough carat, with a grading cost per polished carat. Taking into account the weight loss, you would be talking about a similar cutting cost.

Also, you are comparing an Indian cost with an American or Belgian cost. The main cause for the difference is due to cost of living in different parts of the world.

Finally, there is no question about this: diamond-cutters all over the world are underpaid, while the cost of grading reports is too high. If this is the message that you are trying to bring, I agree, but I cannot agree with the way that you bring it forward.

Live long,

 

[Serg]

Paul,

Why are sure that 35$ is per rough carat? I think it is normal polishing cost per polish carat in India

 

[valeria101]

About the reference base of costs etc.

.... maybe the statistics can be twisted around, but the message sounds clearer if these are reported per finished item as the end-user cost. Not that it matters logically, but this is a more 'tangible' picture for folk like me for whom the rough material is more of an abstraction (unfortunately).

I have heard this before, (that the cost of certification is more than the cost of cutting) but not in so many words. Good to have your report filed neatly here.




Is the question at the end of the article ('Do diamond reports add value?") a rhetoric one ?

In case not... I can easily imagine an explanation of how come anyone pays for that sort of symbolic paper (sort of value of recognition thing), but how would it work without?

The story about Agile and Indian cutters does not make it clear how sellers' grading bias is bad business - after all, if different standards exist among labs already and both they can stand each other and buyers can, there must be something holding sellers from doing the same. On the other hand, the existing grades seem rather well suited to bring up and price qualities of these stones that would otherwise not be obvious and this exercise may not be feasible with a bottom-up grading system that relies on 'reputation' (in an abstract sense of tracking process) to uphold consistency.



Hopefully someone will (or has already?) come up with a change. Notes like this make a nice intro. As if there should be some Part II to your article, Garry

 

[strmrdr]

never happen way too many crooks out there.
Consumers would never accept it starting right here with me!
Id do my best to make sure my fellow consumers never accept it too.
If I had my way Id make it federal law what standards all labs had to grade too for any stone sold in the US.
The soft lad/strict lab is crooked enough as it is without going to thousands of different standards!

 

[Garry H (Cut Nut)]

I did raise this issue rhetorically Ana.

$35 or $100 - it is interesting Paul.

I think it is worth considering.

Storm you may well be the worlds most influential prosumer, but you are but a 'storm in a tea cup'.

I know the people at Venus (the company I used as an example) and deal with them - I trust their grading over GIA's or HRD.

If I might quote a freind who has not yet agreed to be quoted:

What is very important for a certificate from any certifying agency is the consistency. And this is more so, when the number of grades are few.

Think of confusion associated with one grade difference in cut. These amount to 20% grade difference if the number of cut grades would be 5.

There are two solutions to this.

1. Make grading objective and remove all subjective parameters. (eg machine grading).

2. Increase the number of grades, as Venus has done. Venus has 3 sub-grades in every grade. i.e. SI1+, SI1, SI1-, E+, E, E-, VG-Excl, VG, VG-Good, likewise. However consistency is more important here as well.

 

[valeria101]

Date: 12/2/2005 8:03:20 AM
Author: Garry H (Cut Nut)

I did raise this issue rhetorically Ana.

Grades are a matter of rhetoric too after all - they are just words.



There are two solutions to this.

1. Make grading objective and remove all subjective parameters. (eg machine grading).

2. Increase the number of grades, as Venus has done. Venus has 3 sub-grades in every grade. i.e. SI1+, SI1, SI1-, E+, E, E-, VG-Excl, VG, VG-Good, likewise. However consistency is more important here as well.

I am not sure how these are solutions to upholding consistency. There is a fast feedback system involved without the ''right'' incentives. The more frequent the grading rounds the worse. (the fact that labs taking up GIA''s wording for grades were hard pressed to lower standards let me to think this way)

This may sound tottaly out there; but if cuters want to own the grading, why not apply it to some intermediary polished form rather than the end product? That would also speed the bidding down of grades and keep the consistency story in house. If anyone can make a technical case for something so far out the box.

 

[denverappraiser]

Date: 12/2/2005 7:43:55 AM
Author: strmrdr

If I had my way Id make it federal law what standards all labs had to grade too for any stone sold in the US.

Do you really think the situation would be better if the government were in charge of it? I agree that the Bureau of Standards does a pretty nice job of defining scales for various things and it might be helpful for them to put some thought into the matter but a government policing agency for diamond grading? Yikes. I can think of very few situations where increasing federal involvement is an improvement.

Neil Beaty
GG(GIA) ISA NAJA
Professional Appraisals in Denver

 

[denverappraiser]

Garry,

Your question at the end should be in the headline. It''s a good question.

‘Do diamond reports add value?’

Yes, they do.

They add value for exactly the same reason that any other branding adds value. It adds some assurance of quality standards. This is something that consumers are clamoring for. If Venus can convince the consuming public that their alternative brand stands for consistent quality and that their opinions are equally trustworthy, bully for them. Customers will start to demand Venus products in preference to their competitors and then they and their dealers will get to command premium prices. There’s nothing new about this model and nothing unique to the diamond business. OEM manufactures have been on this track since day one. Make a fine product and sell it through someone who has the reputation. As the reputation grows, start building your own brand and your own customers because people will recognize your quality work. At the end, buy out or abandon the owner of the brand name and start promoting through your own.

GIA got into their current position through decades of hard work, dedication, luck and money. Customers find it valuable to have their stamp of approval. If Venus thinks they can offer an equally accepted assurance for a better price, have at it.

Neil Beaty
GG(GIA) ISA NAJA
Professional Appraisals in Denver

 

[strmrdr]

Date: 12/2/2005 9:03:17 AM
Author: denverappraiser

Date: 12/2/2005 7:43:55 AM

Author: strmrdr


If I had my way Id make it federal law what standards all labs had to grade too for any stone sold in the US.

Do you really think the situation would be better if the government were in charge of it? I agree that the Bureau of Standards does a pretty nice job of defining scales for various things and it might be helpful for them to put some thought into the matter but a government policing agency for diamond grading? Yikes. I can think of very few situations where increasing federal involvement is an improvement.


Neil Beaty

GG(GIA) ISA NAJA

Professional Appraisals in Denver

I dont like bringing the .gov into it but it needs doing and the industry cant/wont do it.
It wouldn''t take a new agency the FTC and the Bureau of Standards could handle it.
Even a set standard what consumers can demand that labs grade too would help then a law saying that anyone claiming to grade to that standard will have to be within the set standard of error to claim that the grades meet that standard.
This would actually help the company Garry is talking about.
They could grade to U.S. ftc/bos standards and state so and gain quicker acceptance.

Right now a lab could be 100% right all the time but be using a different scale and be a rip off for consumers.
There needs to be an industry standard and the defacto and unenforced GIA standard that the can interpret anyway they want does not work!

 

[Paul-Antwerp]

Have any of you ever read this article: article

I do not agree with all the viewpoints of Richard, but there is definitely some food for thought there.

Live long,

 

[valeria101]

Date: 12/2/2005 10:14:23 AM
Author: Paul-Antwerp
Have any of you ever read this article: article

I do not agree with all the viewpoints of Richard, but there is definitely some food for thought there.

Live long,

Yes... I have it framed, so to speak... and long before finding Pricescope.

 

[denverappraiser]

Storm,

I agree that real standards would help tremendously and NIST (National Institute for Standards and Technology, the new name for the National Bureau of Standards) is the obvious group to set them. I suspect that the reason they’ve avoided doing it thus far is that there are too many components that are subjective in nature. Machine grading as being suggested by the Imagem folks would be a handy thing for them to hang their hat on and I suspect that they are watching this all progress. This may cause other problems like those being addressed by Mr. Hughes but these are mostly market driven concerns. If people want to pay more for a D than an F, it's appropriate to grade this difference. If the market decides that it makes no difference, the issue will evaporate. It's not a conspiracy. I’m not sure I agree with the idea that a lab should be REQUIRED to use the generally accepted standards any more than they are required to use the metric system in measuring other things.

I think the general question of what value is present beyond the gemological attributes of the stones is an important one. This is what drives the whole retail world, not just diamonds.

Neil Beaty
GG(GIA) ISA NAJA
Professional Appraisals in Denver

 

[valeria101]

Date: 12/2/2005 11:31:37 AM
Author: denverappraiser

If people want to pay more for a D than an F, it''s appropriate to grade this difference.

Could it be the process runs the other way around (whatever the grading, there will be some willing to pay) ?

 

[Brighter_Suns]

I just wanted to add the perspective of a first time purchaser who two months ago would never have dreamed that I would purchase a diamond over the internet. I started this process at the B&M mall stores and was appalled to learn that the average knowledge level was less then what I knew after an hour or two online. From there I saw half a dozen independent jewellers who certainly had more knowledge and a higher quality product but also too high margins and a motive that didn’t match mine; finding the best diamond I could for the money I had budgeted. I actually had a locally respected jeweller tell me he had never heard of AGS when trying to dissuade me from trusting the internet. Obviously he was either lying, or so ignorant he should not be in the trade, either way any credibility he might have had evaporated the moment he said such. So I returned to the PC and began my quest to find what I was seeking on my own and online.

The point to this is that it was the certificate that allowed me the comfort to eventually buy online and not just any certificate but one I felt could trust. I quickly found that I was not even interested in looking at a diamond if it was not accompanied by a GIA or AGS cert (one I could see online as well), and I preferred only current AGS because of the added cut dimensions and percentages over older certs that lacked such information.

With our world evolving into a single market place under e-commerce and countries like China and India only just waking to join in the expansion, consumers need a means of assurance that is as close to possible to being beyond reproach and I can guarantee you we are willing to pay for it. We all know a diamond is only worth what you and I are willing to pay for it, and we are only willing to pay what we perceive as value. A quality certificate allows the average person to comfortably perceive value to something he can not otherwise see. So I applaud labs such as AGS for setting higher standards and I hope the free market will continue to reward such measures by applying a premium to such and by its absence thereby punishing inferior standards.

 

[oldminer]

Garry, I''ll read your report over the weekend, but a couple comments first on the various replies already in this thread seem timely.

The cost of diamond grading reports will fall, over time, as we move our assets and gemologists to overseas in low cost labor areas where sufficient education and training exist. India is a perfect example, as we opened in 2005 there and readily found excellent staff. By Indian standards they are well paid, and we now have the flexibility to meet market pressure on pricing when sufficient volumes are processed. There is no way to do this with a totally domestic lab as the world shrinks the power of electronic communication increases.

I have often advocated abandonment of GIA color grading and simply report the final machine number range that indicates the color of the diamond. It isn''t a single number, but varies slightly from each scan of the stone within a rather tight framework of machine error. The average of the various scans would be the color in most cases. Once in a while a diamond has two colors, zones of color, that defy a single result. Those still require some human grader input. Diamonds with medium or more UV fluorescence also widen the range of readings of body color if any UV is allowed in with the lighting environment. The trade won''t willingly accept diamonds that improve with UV to be graded in a no UV environment at their worst color. The GIA knows this and in spite of definitions the grading of the lab indicates UV is in the lighting they use for final grading. That''s fine, but it does make grading fluorescent diamonds a larger challenge for a machine to grade with as tight a degree of accuracy as non-fluorescent stones. Attempting to mimic GIA''s results is the way we are proceeding. It makes the most sense, but GIA is all over the place in grading fluorescent diamonds, so it isn''t easy to prove to anyone that devices can do what human graders do.

My suggestion has been to abandon letter color grades or to give old letter grades along with new numerical grades. These numerical grades would be finely divided and fewer diamonds would be left in the crossover zones from one grade to the next. Once we get past letters altogether, then no diamond will be in a crossover zone at all. It makes good sense to do this in the long run. Short term, there are a lot of unconvinced or undereducated users out here who have not gotten the message. It is a huge task to reach decision makers, site-holders, and lab chiefs. Something must arise to address this and it is in the preliminary planning stages already.

 

[JohnQuixote]

Date: 12/2/2005 11:31:37 AM
Author: denverappraiser

Storm,

I agree that real standards would help tremendously and NIST (National Institute for Standards and Technology, the new name for the National Bureau of Standards) is the obvious group to set them. I suspect that the reason they’ve avoided doing it thus far is that there are too many components that are subjective in nature. Machine grading as being suggested by the Imagem folks would be a handy thing for them to hang their hat on and I suspect that they are watching this all progress. This may cause other problems like those being addressed by Mr. Hughes but these are mostly market driven concerns. If people want to pay more for a D than an F, it''s appropriate to grade this difference. If the market decides that it makes no difference, the issue will evaporate. It''s not a conspiracy. I’m not sure I agree with the idea that a lab should be REQUIRED to use the generally accepted standards any more than they are required to use the metric system in measuring other things.

I think the general question of what value is present beyond the gemological attributes of the stones is an important one. This is what drives the whole retail world, not just diamonds.

Neil Beaty
GG(GIA) ISA NAJA
Professional Appraisals in Denver

Well, this conversation went upstream pretty fast.

The NIST is a good suggestion. We have been calling for designers of evaluatory machines such as BS and Imagem to submit them to the NIST for some time. As a company interested in grading as well as mechanical evaluation, Imagem would be well-served to do this. Actually, anyone keen to be a player in the future of grading, which I suspect will become mechanical at some point, would be well-served to do this.

 

[Garry H (Cut Nut)]

In answer to comments about polishing costs - $17 per carat of finished stone is the going rate in Israel:

IDI Offering Diamond Polishing At $17 per Carat

By Edahn Golan (Idexonline.com)

The Israel Diamond Institute’s (IDI) technological center is now offering Israeli companies a polishing service for cut diamonds, sizes 1/4 - 4/4, at $17 per carat. The service is an off-shoot of the fully automated polishing service under development by the organization. The pilot project is looking for a commitment of at least 3,000 carats a month from Israeli diamantaires, says Motti Besser, the Diamond Manufacturers Association Director.

At 3,000 carats the pilot will be at break even, and if more diamonds will be polished, the cost will fall below $17. “The project is a spin off of the fully automatic project we are working on,” Besser says. The completion of that project is currently being delayed, after the team was beefed up with scientists from RAFAEL - the Israeli armament development authority - to improve the accuracy of the polishing process.

Some of the processes have ripened, and the IDI decided to start implementing them ahead of the full project. The service is part of the IDI’s effort to improve Israel’s position in manufacturing, after most of the local plants were shut down as manufacturing shifted to India and China where cost of labor is much lower. The IDI hopes to improve Israeli competitiveness and offer help for struggling small and medium size companies.

Israeli manufacturing focuses these days on bigger goods where the cost of manufacturing is a smaller component of the overall cost of the polished gem.

 

[Garry H (Cut Nut)]

Date: 12/2/2005 10:14:23 AM
Author: Paul-Antwerp
Have any of you ever read this article: article

I do not agree with all the viewpoints of Richard, but there is definitely some food for thought there.

Live long,

Paul this quote is not quite right:
Many of the current color and clarity grades are too narrow, so much so that graders themselves have difficulties getting the same stone in the same category every time. This means that the grades are too small. They need to be expanded so that stones of different grades have different appearances to the trained, but naked, eye. Let’s throw the wee little grades out with the wee-wee, unless there’s some difference we can see-see.

 

[WinkHPD]

Date: 12/2/2005 1:52:14 AM
Author: JohnQuixote
Thank you for writing that Garry.

In my experience reputable grading reports are prized by internet shoppers. AGS and GIA provide a yardstick of measure that is (arguably) consistent and strict. For instance, a clarity grade of VS or above from either of these labs practically guarantees an eye-clean diamond to a buyer who has only seen the report, but not yet seen the diamond.

Live shopping situations are reversed, because you see the diamond first. In live sitations the report (sometimes the size of a credit card) may be treated as an afterthought.

That is so true. Many, if not most of my in house shoppers rarely ask about the paper and are often surprised when I give it to them. "What is this?" is a common response when being handed the AGS or GIA report.

I expect an internet client to want to know many things, our in house shoppers just like to look and walk out with what made their hearts happy.

Wink

 

[oldminer]

"I expect an internet client to want to know many things, our in house shoppers just like to look and walk out with what made their hearts happy." Wink

Actually, the same thing is desired by Internet shoppers, but they are attempting to overcome the large obstacle of distance by getting a better description of the diamond than someone shopping in person. That was my realization several years ago when I first made the entry into Internet appraisal services. I knew the motives of consumers, but saw that they needed reliable assistance in being able to make diamond buys on stones they had not yet examined. In my estimating, it is like flying an airplane with instruments when you agree to shop for diamonds over the Internet. These instruments get better all the time. So good that often the landing with instruments is smoother than those pilots do manually. Its the main reason I created the Fancy Shape Selector tool which took one more bite out of how to describe fancy shaped diamonds which still are lightly traded due to problems fully describing them. Its an ongoing process that will definitly get better in time.

Once consumers are assured of a smooth landing, they will be able to buy a larger number of diamonds from dealers without ever having to go to a store. Wink, you'll be out in your kayak more often and that can't be all bad.

 

[mdx]

Date: 12/1/2005 11:29:18 PM
Author:Garry H (Cut Nut)
I have written a brief article here http://journal.pricescope.com/Articles/35/1/Why-do-we-need-diamond-grading-reports.aspx in the Pricescope Journal.

One of my OctoNus / Helium associates, Janka Mistry, raised this intersting issue the other day:

With the implementation of new technologies current diamond polishing costs are about $35 per carat. Diamond grading reports run to $127 per carat. Does this seem a little strange to you?

I hope this article might raise some interesting discussion.

It is a very brief single page

Gary
I have been considering this for a while.

As you know we have been dealing with Venus and similar brands for a number of years now and know where you are coming from.

I think there could certainly be a model where one could offer a “Factory Report” with an option to purchase a full report at an additional cost.

The detail on the parcel papers of some of these factories is often more comprehensive than some of the top labs

A reputable vendor with a strong brand could easily under write the grading result

If a client is uncomfortable all he needs to do is pay the additional grading cost

This would be especially viable in the smaller sizes where the cost of certification constitutes a larger proportion of the cost.

Johan

 

[strmrdr]

I wouldnt acept a factory report for the same reason I wouldnt drop 10k on an uncerted diamond.
too much like the fox guarding the hen house... no thanks

Besides the trade would just pocket the money anyway,so we consumers would still be paying the same or more and getting less.

No thanks.

 

[mdx]

Ok storm

So you would be a typical client that would elect to pay the additional amount for Independent Certification while lets say Winks in-house clients take advantage of the lower price.

Winks clients place their trust in him and the manufacturers report, perhaps later confirmed by the appraiser if reqiured for insurance.

Johan

 

[Garry H (Cut Nut)]

Date: 12/2/2005 4:57:22 PM
Author: strmrdr
I wouldnt acept a factory report for the same reason I wouldnt drop 10k on an uncerted diamond.
too much like the fox guarding the hen house... no thanks

Besides the trade would just pocket the money anyway,so we consumers would still be paying the same or more and getting less.

No thanks.

You are not getting it yet Storm.
This is not a proposal for now - no one is suggesting this happen immediately.
What Wink says is true - I recently sold a pair of 2ct each earrings without a grading report to a good client who has several large stones from me with GIA paper. The diamonds spoke for themselves and she has no reason not to trust me, and I would never risk loosing her business or very valauble referrals.
The same with my supplier.

Now let me ask you - would you Storm - accept Tiffany''s color and clarity grading?

With regards the prices being the same anyway - well that is not true according to Adam Smith''s cometitve market theories.

 

[strmrdr]

Date: 12/2/2005 5:18:36 PM
Author: mdx
Ok storm


So you would be a typical client that would elect to pay the additional amount for Independent Certification while lets say Winks in-house clients take advantage of the lower price.


Winks clients place their trust in him and the manufacturers report, perhaps later confirmed by the appraiser if reqiured for insurance.

Johan

nope id buy from someone offering AGS and maybe GIA certed diamonds and avoid self-certed diamonds and recomend to everyone I come in contact with about diamonds to do the same.

 

[pricescope]

I think there is some merit in this. It comes down to the brand name and trust. Tiffany''s already doing it.

If accuracy will be different for different brands, the market will adjust the pricing to the strictness of e.g. RioTinto or Alrosa or RosiBlue the same way it adjusts to the strictness of GIA, AGS, or IGI today.

Consumers should be able to verify the gradings with independent lab or appraiser afterwards.

 

[strmrdr]

Date: 12/2/2005 5:27:00 PM
Author: Garry H (Cut Nut)

Date: 12/2/2005 4:57:22 PM


Now let me ask you - would you Storm - accept Tiffany's color and clarity grading?

Getting busy here but ill answer this one...
No and heck no.
Dont trust tiff anymore than the shoe salesman turned diamond salesman at walmart.