Diamonds as a commodity

[strmrdr]

A lot of people in the industry are scared of it but is it really a bad thing?

 

[Dee Jay]

Storm - hope I''m not entirely missing the boat on your post, but do you mean diamonds as a commodity market like gold and silver are traded now?

If that''s the case, I think it would be interesting information to have but I don''t know how useful in a practical way it would be. For instance, even if the average (or even educated) consumer knows gold is currently trading at $x per ounce, will that make them more or less likely to buy a finished piece of gold jewelry at a particular price from a store.

My guess is that market transparency wouldn''t make a huge impact on the general buying public. On other participants further up the market chain (e.g., buyers of raw stones), it probably would have some impact though

(Sincere apologies if I am way off base with where you are going on this topic!!!)

 

[sylvesterii]

There are just too many variable with diamonds to be able to have a reliable standardized market price. with pure metal, it is pure(basically) metal that can be formed into standard blocks. Diamonds just aren''t that way. too many shades, clarities, shapes, let alone cut. Plus, you can''t buy a troy ounce of gold, and re-cut it to make it worth more or different. Not to mention that as carat weight goes up, price goes up exponentially, and differently between certain sizes.

 

[denverappraiser]

I think it depends on who you ask. This trend has made Martin Rapaport and Jerry Ehrenwald into wealthy men. The labs have grown fat and happy and the mining companies certainly not disturbed by it. The retailers are complaining because it makes price shopping easier but I doubt it’s as big an issue as they would like to make it. Coffee is a commodity after all and Starbucks still seems to be able to carve out a successful retail market. There are similarly successful companies in commodities ranging from lumber to airlines.

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

 

[JohnQuixote]

For consumers following some of these threads...

The ‘Commoditization of Diamonds’ within the trade refers to the reduction of emotional aspects of diamonds to sterile economics and technicalities by manufacturers and sellers. Retailers are in business to buy and sell diamonds and to make a profit. Consumers buy diamonds to own them or give them away as emotional statements.

Retailers describe diamonds as ‘D / SAS 0.400,’ or ‘fancy vivid yellow.’ Consumers who see them will say ‘it’s icy’ or ‘it matches her dress.’

Retailers describe them as ‘SI2’ or ‘VVS.’ Consumers merely see a ‘birthmark’ or not.

Retailers describe ‘p407t53c345.’ Consumers see sparkle and colors.

Because they deal with retailers, consumers meet us on economic levels, but ultimately no one will wear a tag stating ‘D, VVS, p407t53c345’ on their diamond… Once it’s sold the economics become secondary. The most important thing to the buyer will be the emotional descriptors (“How icy! How sparkly!"), used long after technicalities are forgotten.

Before internet sales existed, shoppers saw diamonds under blazing jewelry store lights. Diamonds sold themselves with emotions. Technicalities such as grading reports to confirm pedigree were often afterthoughts.

On the internet, the opposite is true: The online shopper is now offered technicalities and pedigree before ever seeing the diamond live. It’s a complete reversal. This is why sometimes in the trade you will hear ‘The commoditization of diamonds’ and internet sales mentioned together.

 

[belle]

Date: 1/20/2006 3:33:43 PM
Author: JohnQuixote

For consumers following some of these threads...

The ‘Commoditization of Diamonds’ within the trade refers to the reduction of emotional aspects of diamonds to sterile economics and technicalities by manufacturers and sellers. Retailers are in business to buy and sell diamonds and to make a profit. Consumers buy diamonds to own them or give them away as emotional statements.

Retailers describe diamonds as ‘D / SAS 0.400,’ or ‘fancy vivid yellow.’ Consumers who see them will say ‘it’s icy’ or ‘it matches her dress.’

Retailers describe them as ‘SI2’ or ‘VVS.’ Consumers merely see a ‘birthmark’ or not.

Retailers describe ‘p407t53c345.’ Consumers see sparkle and colors.

Because they deal with retailers, consumers meet us on economic levels, but ultimately no one will wear a tag stating ‘D, VVS, p407t53c345’ on their diamond… Once it’s sold the economics become secondary. The most important thing to the buyer will be the emotional descriptors (“How icy! How sparkly!''), used long after technicalities are forgotten.

Before internet sales existed, shoppers saw diamonds under blazing jewelry store lights. Diamonds sold themselves with emotions. Technicalities such as grading reports to confirm pedigree were often afterthoughts.

On the internet, the opposite is true: The online shopper is now offered technicalities and pedigree before ever seeing the diamond live. It’s a complete reversal. This is why sometimes in the trade you will hear ‘The commoditization of diamonds’ and internet sales mentioned together.

great explanation sir john.

 

[icefisher]

Thanks John for that elaboration, especially on the "complete reversal" between how diamonds sell themselves/are sold under the blazing B&M lights vs. on the internet. When I was in the market recently I tried explaining to the last B&M retailer with whom I dealt, why I''d decided that I actually preferred making the purchase on the internet. I got a total blank look; if you''ve seen Spinal Tap it was "these go to 11" all over again.

Now I wasn''t explaining the difference as well as you did, but also I think he didn''t want to admit that he understood it.

As I left the store though I shed no tears, because there were lots of others there waiting to give him their $$$.

 

[Hest88]

I think there''s no doubt in my mind that it helps both consumers and the type of vendor who wants to compete with tangibles and not intangibles. Look at cars. Car dealers were used to bringing in a customer, talking about the purring engine and smooth leather seats, and closing the sale with the unwitting customer without having to show proof of value. Similarly, a jeweler with the bright lights can say "look how gorgeously it shines" and "don''t you want the best for your girl" and the customer can walk out with an inferior stone at a premium price, or even a nice stone at a highly inflated price (per the Tiffany model). Aggressive or schmoozy salemanship trumps common sense.

"Commoditization" of stones means that 1) consumers can purchase diamonds according to real measurements and facts and proof of performance and 2) vendors who don''t have the money of a Tiffany to have a glitzy store, or national marketing, or celebrity connections, or are reluctant to be salesmen first and jewelers second, can prove that their stones are just as good as the big guys'' rocks.

 

[JohnQuixote]

Date: 1/20/2006 4:02:12 PM
Author: icefisher

Thanks John for that elaboration, especially on the 'complete reversal' between how diamonds sell themselves/are sold under the blazing B&M lights vs. on the internet.

IF - You're welcome. It really has created a reversal hasn't it?

To the original question: Is commoditization a bad thing?

As with everything, the answer depends on balance: NO economic info is just as bad as over-focus on economic info (this is the commoditization that is 'feared'). I don’t ‘fear’ the amount of commoditization necessary to sell diamonds on the internet, but I do strongly believe in a balance.

The one extreme (no economic info) is when a shopper sees a diamond under blazing lights and relies on ‘instinct’ or uneducated sensory input with no concern for information. Though some people are ok that way, for many it could be too much emphasis on emotion without being prudent – and can lead to regret.

The other extreme (over-commoditization) is overemphasis on excessive data, technical abstracts and machine reports. Although some people are wired that way, for many people the reduction of an emotional object to a data stream is an exhausting exercise that may lead to anxiety or mental gridlock.

Neither extreme serves the majority of consumers. Most are comfortable somewhere between the poles.

Fearing ‘commoditization’ is futile, since the internet is here to stay. Instead, the focus should be on assessing and meeting each consumer’s needs on a case by case basis. The advantage we offer as internet dealers is that consumers are in control… If our clients go away both emotionally delighted and economically confident in their purchase, what is to fear?

 

[icefisher]

Yep, agree 100 percent that (as with most things) balance is key. Most people are comfortable between the poles; no exception here.

Thanks largely to PS I was able to educate myself enough to feel comfortable that, based on a review of paper, IS, etc, the diamond I was considering should be what I was looking for. Based on the feedback regarding WF that I''d read & heard, I was pretty confident that it would be. (Same would have been true for GOG).

But without the ability to actually look at the ring, with the option of snapping the box shut and putting it on the next Fedex flight back to Houston, there''s no way I''d have considered an online purchase.

 

[denverappraiser]

One of the big remaining effects of this progression is on the secondary market. Diamond hold up pretty well and approximately every diamond ever mined is still in circulation and potentially available to be sold. Dealers have historically been in possession of relatively secret knowledge that made it effectively impossible for a consumer to buy diamonds without their assistance but this is becoming less and less true. It continues to be the case that individual sellers are operating at a serious handicap but I think this may be shrinking as it becomes easier to define exactly what makes one diamond more desirable than another. There is still a fair amount of value added by the good dealers but it’s going to get harder for the marginal folks to rely on the fact that they know something that the customers don’t.

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

 

[Rod]

I work in the technical staffing business. You know, we provide people on a time and materials basis to major corporations who don''t want to hire those resources as a permanent fixtures. Over the last couple of decades, our industry has become highly commodotized. As a commodity, our margins have been reduced and our prices restricted. While this helps the bottom lines of the corporations who buy from us, it diminishes our ability to charge more money. Therefore, dominating our marketplace becomes the realization to higher profits.

It appears this is happening in just about everything that a person can purchase, whether it be a gem, or a car. For us who are selling something, it means we can''t just charge whatever we want. And for those who buy something, it means they may be getting the best value for their dollar.

Since I don''t sell diamonds, but I recently bought one, the fact that the diamond industry has become a bit more commoditized wasn''t a bad thing for me.

 

[Serg]

Date: 1/20/2006 12:51:28 PM
Author:strmrdr
A lot of people in the industry are scared of it but is it really a bad thing?

Commodity is good for most products but bad for luxury products.
Diamond is losing more and more other Luxury products because move to commodity.

 

[strmrdr]

Date: 1/21/2006 1:04:47 AM
Author: Serg

Date: 1/20/2006 12:51:28 PM

Author:strmrdr

A lot of people in the industry are scared of it but is it really a bad thing?

Commodity is good for most products but bad for luxury products.

Diamond is losing more and more other Luxury products because move to commodity.

is it that or are they losing because they are overpriced?
I think its the price more than anything.
I think jewelry was down because it has priced itself outside the comfort zone of the target market.
Even on PS the most common budget market has moved from h-i si1 to j-si2 and there isnt any place to go before any too included and too yellow and that moves the $$ to other goods.

 

[Garry H (Cut Nut)]

Storm price or cost has very little to do with what and why people buy things in the way that you think.

You should be aware that you modus operandi is very different to most peoples.

The biggest selling products in most marekets are not usually the cheapest.
In luxury markets this is even more true.

People want luxury and to be indulged - it is normal.
In Ancient times civilizations that self destructed often did so because they over indulged in luxuries and got soft.
(The Spartans remained a force for a long time because they did not over indulge.)

We have witnessed diamonds becoming an 'every day' luxury over the past 1-2 decades in the developed world.

But here is an alternative view for you:

Diamonds could become a lot more expensive if they were listed on share type exchanges because they would become investment medium.
Gold seems to be behaving this way at the present - where demand for storage and speculation is growing faster than demand for real usage.
This is what happened to some diamond prices the last time they became "commoditized" in the late 1970's - 1ct D IF is still less costly than it was then.

 

[strmrdr]

Garry some what true but the vast majority of diamonds are still bought in the US to keep the Lady happy.
When the price hits a point that the LAdy would rather have a car or a down payment on a house watch the market for diamonds crash.
It is on the verge of that pricing level right now.
How many people lately have been buying diamonds on PS with the purpase of trading them up to what they actualy want.
That is not a sign of a healthy market.

A healthy market is when supply matches demand and the sale price is ok with both parties in the transaction.
That diamonds are seen by most people as being way overpriced and artificialy controlled (both of which are still true in some ways) keeps the market from ever balancing.
An unbalanced market is prone to crashing.

The only thing keeping diamonds going is years of marketing.

 

[solange]

I seem to recall that, at one time, D Flawless one carat diamonds were condisered "investment" quality and were sold at a very high price--(correct me if I am wrong but I think the price once reached $32,000 for 1 carat D Flawless.) People were advised to buy them for investment and just keep them in a vault.

Obviously these were not a very good investment because the price is now much lower than it had been at its peak. Then there were the Blue White diamonds which had a premium. There was little information about cut. The emphasis was on color and clarity. But this has changed.

Now, consumers are more open to eye clean stones that are not flawless and cut has come into the picture.

And it seems that diamond grading has not reached the highest scientific level and there is more to be learned that may have an effect on pricing of stones. I don't think it is advisable to think of a diamond as an investment if that is what is meant. Even if you get a great buy on a stone, you are very unlikely to recoup anywhere near your "investment" if you try to resell it unless it is a very rare and unusual stone.

 

[denverappraiser]

If (and this is a big if) diamonds could be clearly and precisely defined they would be fairly well suited for investment. This is what the whole issue is about. For the last century or so, diamonds have been sold with the full expectation that the end buyer will never resell. This is part of what made it a good business for the DeBeers folks for so long. If it becomes a realistic tool for wealth management, this will, by definition, require consumers to be able to cash out their investment when they decide it’s appropriate to do so. This changes everything. I’m not so sure this is all that bad or even that it will drive down prices but we’re nowhere near as close to this situation as some of the media types are suggesting. ‘Investing’ in personal property is a remarkably complicated issue and there are huge problems even for things like coins or stamps that are fairly easy to define.

Gold has been on a fairly steady decline for the last thousand years or so. Twas a time when the appropriate ransom for a kidnapped prince would be his weight in gold. This was considered a serious tap into the national treasury and the offended country would have to consider the merits, and perhaps the mass, of the prince in question before deciding if he was worth the cost. Even at today’s relatively high prices, a 200 pound prince would bring just over $1.6 million, roughly the price of a modest home in Palo Alto California. This may, in part be because princes have become less important but I think the real difference is the broad distribution and the commoditization of gold.

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

 

[strmrdr]

Gold is an interesting market.
I read a while back when the gov made and agreement with other gov around the world not to release reserves to the open market that over 80% of the gold ever mined is off the market in goverment and bank vaults.

 

[Serg]

Cars specifications from different brands are more or less same( in one class car)

For example if I take specification (without name model) for newest cars from Honda, Toyota, Nissan, I can not understand correlation between brand and specification.
But I can easy understand which car is without specification and Brand sign on car. I think I can recognize car after driving only (even I did not see car outside before), Defiantly I can recognize Honda from Nissan and Toyota.
Cars inside Brands are commodity, But Outside one Brand cars are not commodity.
Each Great Car Brand has unique consumer niche. It is base for continues developing in car industry. Cars Brands do not try exploiting idea consumer confidence only. They are using technology for improving product and give more positive emotion from each new car. People buy new car, because We like new car firstly.( Of course people buy new car to defense status or to try receive new status, or several other reason too). Do not necessary the special day to buy new car (like birthday, wedding,..)
Who can recognize diamond manufactory by diamond? All Top grade round diamonds is more or less same. All Top Grade round diamonds have not unique feeling for different consumer niches.( in one category price, like in one car class) . Real originality is available for very expensive diamonds( BTW without any AGS or GIA cut grade).
Current Labs policy are creating more and more problems for all diamond industry. They fix predominance of round cut , break any positive innovation from cut industry.

 

[strmrdr]

te:[/b] 1/21/2006 11:33:31 AM
Author: Serg

Current Labs policy are creating more and more problems for all diamond industry. They fix predominance of round cut , break any positive innovation from cut industry.

[/quote]

In not sure on that myself.
AGS innovated when they came up with the princess cut grade and I think it was positive?

I see the innovative cuts like the Solasfera and Eighternity doing well.
The lab cut grading doesnt seem to be holding them back.

This is an interesting subject with lots to think about :}

 

[Serg]

Date: 1/21/2006 11:43:05 AM
Author: strmrdr

Date: 1/21/2006 11:33:31 AM
Author: Serg

Current Labs policy are creating more and more problems for all diamond industry. They fix predominance of round cut , break any positive innovation from cut industry.

In not sure on that myself.
AGS innovated when they came up with the princess cut grade and I think it was positive?

I see the innovative cuts like the Solasfera and Eighternity doing well.
The lab cut grading doesnt seem to be holding them back.

This is an interesting subject with lots to think about :}






re:AGS innovated when they came up with the princess cut grade and I think it was positive?


No. It is very big AGS mistake. It will more clear After they give to market AGS 0 cut grade for EMERALD!!

http://www.gemology.ru/cut/english/conferens-article/3.htm


We propose a cut grading system that fulfils the basic principles of evaluation of:

Equal rights for grading all cuts;
Equal rights for all proportions;
Similar stones get similar grades.

re:I see the innovative cuts like the Solasfera and Eighternity doing well.
The lab cut grading doesnt seem to be holding them back.

Ask about cost and efforts. ANd think why they need such big efforts

 

[strmrdr]

Interesting Serg,
I agree with your cut system goals.
The question it raises to me however is if its practical and can it be done.

I think I see what your saying with the AGS princess cut grade.

on the plus side:
it raises the availability of well cut princess cuts and gives the cutters a target to shoot for.

on the negative side:
it locks the definition of an ideal cut princess into too narrow a range.

Am I understanding you right?


That is one of my concerns with the s.e./asscher cut grades that it will be too narrow a range and limit choice.
My favorite pattern of asscher will likely score well but I can see another type that a lot of people like not scoreing well.
Iv had a discussion before about using light return measuring machine to select asschers and how it can lead to picking lousy asschers.
The aset on the other hand iv found to be a kicken tool for the job but worry that the range will be too narrow.
Im looking forward to seeing what they come up with and have high hopes.

 

[oldminer]

While standards may tighten, we find diamonds are not becoming a commodity. If anything, the finer the gradations of various qualities that we can categorize, the less of a commodity a diamond becomes. One must refer to what actually a commodity is defined as before worry over it happening. It won't happen.

However, the path from the site-holder to the end user is being shortened by better standards and more accurate descriptions of individual diamonds. You need far fewer middle men-dealers when diamonds can reliably be described to potential retailers or even to end users via the Internet or other inexpensive communication mediums.

To those dealers who are being squeezed out of the business, diamonds have become a commodity because the human interaction they once provided is no longer required, but the truth is quite different. The market is just gaining efficiency, even while the product becomes ever so more complex. We can all handle a great deal of complexity provided the standards are accurate and meaningful. The problem of complexity is magnified when you can't depend on how the "standards" have been applied or if the standards are far too subjective and/or subject to abuse by graders.

 

[Hest88]

Date: 1/21/2006 12:30:48 PM
Author: strmrdr
That is one of my concerns with the s.e./asscher cut grades that it will be too narrow a range and limit choice.
My favorite pattern of asscher will likely score well but I can see another type that a lot of people like not scoreing well.

Perhaps, but I''m not so sure that will happen. "Cut" is a "C" that determines value but it''s traditionally one that has been too complex for most consumers to understand. If we have standard cut grades for all fancy shapes all that will mean is that---like the market for a SI2 or I2---people who can''t afford to purchase a top grade cut will gravitate toward a lower grade cut.

 

[smappraisal]

Hi all,
If I may add a thought to this discussion, the very connotation of the word commodity, implies that it occurs in quantity, time and again, over and over, i.e. commo(n)dity. In my mind, diamond could never be a commodity. If you lined up 100 stones that were 2.00ct G-SI1 Round, no two of them would be alike. There is, in the least, a nuance to each one that separates it from all others. That''s what makes each diamond so unique. Every crystal is different whether it be rough or polished.
After all, it''s rarity and beauty that creates value, and therefore makes diamond different from all other articles of commerce. Thanks for reading.

Stephen Marino
Professional Appraiser
Boston & vicinity

 

[JohnQuixote]

Date: 1/21/2006 1:48:14 PM
Author: 19th Hole
Hi all,
If I may add a thought to this discussion, the very connotation of the word commodity, implies that it occurs in quantity, time and again, over and over, i.e. commo(n)dity. In my mind, diamond could never be a commodity. If you lined up 100 stones that were 2.00ct G-SI1 Round, no two of them would be alike. There is, in the least, a nuance to each one that separates it from all others. That''s what makes each diamond so unique. Every crystal is different whether it be rough or polished.
After all, it''s rarity and beauty that creates value, and therefore makes diamond different from all other articles of commerce. Thanks for reading.

Stephen Marino
Professional Appraiser
Boston & vicinity

Stephen,

You''re striking the right chords. Diamontaires and consumers who focus on the emotional aspect will all agree with you. Each of those 100 is unique, and each will mean something different to its ultimate wearer. Of course, to manufacturers & sellers focusing on economics those 100 represent identical Rapaport descriptors.

Oldminer said "To those dealers who are being squeezed out of the business, diamonds have become a commodity becasue the human interaction they once provided is no longer required, but the truth is quite different. The market is just gaining efficiency, even while the product becomes ever so more complex. "

The upstream to downstream (manufacturer to retailer) may become more commoditized but if the shoe fits more efficiently we should wear it. It''s natural for our internal processes in the trade to evolve.

 

[Lynn B]

Date: 1/20/2006 3:33:43 PM
Author: JohnQuixote
...Retailers describe diamonds as ‘D / SAS 0.400,’ or ‘fancy vivid yellow.’ Consumers who see them will say ‘it’s icy’ or ‘it matches her dress.’


Retailers describe them as ‘SI2’ or ‘VVS.’ Consumers merely see a ‘birthmark’ or not.


Retailers describe ‘p407t53c345.’ Consumers see sparkle and colors.

John,

I just HAVE to ask... what does the code "SAS 0.400" mean as regards a "D" colored stone? Does it have anything to do with "D" being the 4th letter of the alphabet? What's the "SAS" mean?!!

I know, I know! Totally nerdy question! But what do you expect from a diamond geek who loves Wheel of Fortune??!!

Thanks!

 

[Garry H (Cut Nut)]

Sergey is probably asleep now Storm, so I will try to answer 4 him

Date: 1/21/2006 12:30:48 PM
Author: strmrdr
Interesting Serg,
I agree with your cut system goals.
The question it raises to me however is if its practical and can it be done.
it is what we have been talking about for + a year - it needs a master stone study that will require a lot of funding, and can be supported by the use of Sergey''s new concept called ETAS. We would invite other labs to participate so that there could be uniformity (i.e.GIA would not give Excellent to AGS4 stones and AGS would not give Ideal to GIA Good stones)

I think I see what your saying with the AGS princess cut grade.

on the plus side:
it raises the availability of well cut princess cuts and gives the cutters a target to shoot for.

on the negative side:
it locks the definition of an ideal cut princess into too narrow a range. no Storm, not an issue - the problem there is that say they manage in 5 years time to be able to issue Ideal AGS 0 grades for 5 traditional cuts (and maybe a branded stone pays them $2million to do the research to also grade their stone)> Now we have 5 or 6 Ideal cuts - but one is best and the rest are between 70% as good and 95% as good. How does a new consumer who wants to buy the best diamond know if it is the "best"?
And problem # 2
There is no incentive to produce new cuts and innovate - we believe better than Tolkosky is possible - but if you did produce it - you need to spend millions to promoteit and people will believe that GIA Excllent or AGS ideal is better than it anyway

Am I understanding you right?


That is one of my concerns with the s.e./asscher cut grades that it will be too narrow a range and limit choice.
My favorite pattern of asscher will likely score well but I can see another type that a lot of people like not scoreing well.
Iv had a discussion before about using light return measuring machine to select asschers and how it can lead to picking lousy asschers.
The aset on the other hand iv found to be a kicken tool for the job but worry that the range will be too narrow.
Im looking forward to seeing what they come up with and have high hopes.

 

[Serg]

Date: 1/21/2006 12:30:48 PM
Author: strmrdr
Interesting Serg,
I agree with your cut system goals.
The question it raises to me however is if its practical and can it be done.

I think I see what your saying with the AGS princess cut grade.

on the plus side:
it raises the availability of well cut princess cuts and gives the cutters a target to shoot for.

on the negative side:
it locks the definition of an ideal cut princess into too narrow a range.

Am I understanding you right?


That is one of my concerns with the s.e./asscher cut grades that it will be too narrow a range and limit choice.
My favorite pattern of asscher will likely score well but I can see another type that a lot of people like not scoreing well.
Iv had a discussion before about using light return measuring machine to select asschers and how it can lead to picking lousy asschers.
The aset on the other hand iv found to be a kicken tool for the job but worry that the range will be too narrow.
Im looking forward to seeing what they come up with and have high hopes.

Yes. one part. : ASG stopped improving princess. Princess had good improving last 10 years. Did any labs help to improving princess, move to market?
No.
And now AGS stopped this amassing process.

Second part. AGS said : We do separate grade for each type cut. We do not help to consumer which cut is better, We do not help to manufactures to create and move to market new beautiful cuts.

It is not mean I do not like AGS lab.

About commodity.
Unique is not enough to avoid commodity.

Each Apple is unique but 1 ton apple is commodity.