This article was first published in the 1st quarter 2018 edition of Personal Finance magazine.
If you received something sparkly under the Christmas tree last year, how do you best care for it? And what’s it really worth anyway?
Shital Naik, a professional diamond grader qualified by the Gemmological Institute of America working for professional jewellery valuations company Central Diamond Administration, answered the following questions:
1. I’m going through a divorce. How can I resell my diamond ring for the value it’s actually worth?
You firstly need to understand that the value of your ring is not how much you paid for it. The retail price of an item includes a jeweller’s costs and mark-ups. That is not attributed to the item’s worth. This is why most jewellers do not buy back jewellery from customers.
If you are looking to resell, you should know the value of the components that make up the ring. For this, you need to obtain an appraisal done by a qualified, professional jewellery valuator and diamond grader. You should also look for valuators who are willing to back their valuation with an offer for purchase.
The valuation methodology must be explained and clearly stated. If you do not have a diamond certificate from a grading laboratory, the valuator will need to professionally grade your diamond, which will entail the removal of the diamond. Professional valuators will educate you enough to ensure that you know your diamond’s real worth.
2. I’ve received some heirloom jewellery from family. How can I find out what it’s worth?
Heirloom jewellery isn’t often accompanied by documentation. You should go to a professional valuator with the correct qualifications for their opinion. Note the valuation has to be thorough – not the one-page document you get from a jeweller.
After this, you may want to go one step further and have the valuator safely remove the diamonds and send them for grading to the local office of a reputable laboratory such as the Gemmological Institute of America.
The diamond is graded by the laboratory and is laser-inscribed with a report number, then sent back with the necessary certification and is reset at a minimal fee into your ring. Due to this, you will always be able to access the diamond certificate anywhere in the world. This way, your diamond ring will always be identifiable, so even your granddaughter will have the correct certification, if remains an heirloom for generations to come.
3. I have heard interesting things are happening with diamonds as an asset class. Are diamonds about to ‘take off’? How can I invest to get in on the action?
Diamonds have been in the news lately, thanks to the recent creation of a Singapore Diamond Index (SDiX) that can be traded on and India having started trading in diamond futures.
It’s important to note that this isn’t available in South Africa currently. To invest in diamonds, you need to understand all the aspects about diamonds and deal with an honest and transparent diamond expert. Buying jewellery is not necessarily an investment – beware of all the mark-ups and costs that are part of the jewellery retail value. These amounts are not part of the intrinsic value of a diamond.
There have been many attempts at trying to form an asset class for trading in diamonds. However, not one diamond is identical to another. Based on the conditions under which diamonds are formed, diamonds can be likened to people, in that no two people have the same fingerprint. With the advancement of technology, attempts to form this asset class will continue.
However, the big question remains who will determine the pricing index for diamonds. Pricing will need to be accepted as the global standard for the asset class to be successful, much like gold is. This has not happened yet, and past attempts have been unsuccessful, so be cautious.
4. I have come into possession of some diamonds, and am keeping them in a safety deposit box at a reputable bank. Is this the best way to manage my diamonds?
As we have seen in the news, these vaults are not necessarily safe. One needs a thorough valuation of all items first and then consider insuring the items.
Often, people feel that the premiums are exorbitant. However, proper valuations help with this. We did a case study and the results reflected that jewellery valuations are not standardised and regulated and thus values are ridiculously inflated. A diamond ring professionally valued at R30 000 was valued at a minimum of R65 000 and up to R250 000 by jewellers! A professional, transparent and qualified valuation often means lower premiums.
Professional valuations should contain most, if not all, of the following:
• An accredited jewellery professional;
• Diamond in-depth and visual characteristics;
• Metal characteristics;
• Procedure to arrive at market value;
• Item characteristics;
• Qualified appraisers;
• Finish noted;
• Manufacture noted;
• Hallmark/trademark noted, if there is one;
• Records on file;
• Market rates; and
DIAMONDS ENTER THE FINANCIAL MARKETS
As of October 10 last year, investors in Singapore and select other cities in the world could trade something new on an investment exchange – diamonds.
According to the Singapore Diamond Mint Company, its Diamond Bullion product, exclusive to the Singapore Diamond Investment Exchange (SDiX), means that diamonds can be traded on a global investment exchange at market-driven, transparent pricing – for the first time in history.
“The new Diamond Bullion presents the opportunity to invest in diamonds as a safe haven asset for the first time,” says Alain Vandenborre, the founder and chairperson of the SDiX and director at the Singapore Diamond Mint Company. “It is designed to bolster investment in diamonds as an asset class.”
Experts warn that this is unchartered territory, as diamonds have simply never been standardised enough to be a reliable asset class for investors. Nevin Sher of Johannesburg’s Central Diamond Administration has concerns.
“I can be a layman and invest in the stock market, and the exchange ensures all the due diligence and so on is in place – but diamonds have to contend with an existing lack of transparency in the industry. When the world economy is doing well, diamonds will do exponentially well – much more so than other asset classes. Diamonds can go up 20 to 30 percent in a year, but they can also drop 40 percent overnight. This is something where you really need to be an expert in what you are trading," Sher says.
“Diamonds are one of the most difficult things to standardise, because a one-carat diamond can have over 100 different combinations of colour, clarity, cut, weight, inclusion and more, and each of these has a different value. So, two different products could vary greatly with the exact same specifications on paper, and even the same stone could vary based on opinion. Gold is transparent – everyone in the world agrees that this much is worth this amount, so the price is fixed.”
Vandenborre is more confident. “We believe that diamonds have the potential to rival gold’s status as a secure store of wealth and an alternative investment; hedging against inflation, volatility and currency deflation,” he said when asked to comment. “When gold bullions were introduced, they grew from $250 million in 1900 to $200 billion today. The diamond bullions traded on the SDiX will very likely follow a similar path.
“The Diamond Bullion is a fintech product using proprietary technology to authenticate and trade at fully transparent pricing on the SDiX, in a tamper-resistant zirconia case with unique optical signature recognition and a serial number that can be instantly authenticated via a secure mobile app (both Android and Apple). The GIA certificates of every diamond within the Diamond Bullion are pulled from the server and shown on the app – removing the need to have any expertise of diamonds.”
South African investors may be able to get in on the action.
“SDiX is a global exchange, which means investors from South Africa will be able to invest, purchase and trade the Diamond Bullions as long as they instruct their trades via one of the broker members of SDiX,” Vandenborre says. “The exchange currently has no stock or commodity broker in South Africa; London and Dubai are markets where South African investors can trade. But it would make sense to have brokers from South Africa to solicit membership of the exchange.”