Pricing diamonds is more art than science. While a well-trained professional can assess the weight and characteristics of an individual diamond in a well-established procedural system, the details of the transaction ultimately dictate the price.
Such variables as where the transaction takes place, what the size of the lot of diamonds is, at what point in the supply chain the transaction is occurring, ethical considerations, administrative considerations, and the relationship between the two parties all contribute to the final sale price.
A diamond will exchange hands many time before it ends up mounted in a ring and worn by somebody. At each of these stages, the person doing the selling wants to make a profit, and will extract value from their involvement, increasing the ultimate price.
At some points, namely cutting and polishing, there is a value-add to the procedure, wherein the diamond is "improved" for the market in some way.
While cut and polished diamonds have established ratings systems to determine their price (the 4 C's you may be familiar with, cut, clarity, color, and carat), and an internationally recognized body that performs certification for assessing these values, the value of rough diamonds is typically tied to its value as a raw material for a cut and polished diamond.
I work primarily with rough diamonds (and other gems), which sometimes makes finding fair valuations for them difficult and more subject to interpretation.
How are rough diamonds typically valued?
If you are purchasing a rough gem for the purpose of cutting, your goal is to increase the value of the diamond through your labor, and achieve some profit for your services. Cutting diamonds is far more difficult that cutting other gems, and requires a very specialized professional with years of training.
The quality of the cut for the final product depends not only on the internal and external structure of the diamond, but also the level of skill of the practitioner, and the quality of the equipment used to cut the diamond. This can have a substantial impact on the final value of the gem.
Assessing exactly what type of yield a diamond might be expected to cut down to also requires a great deal of specialized skills. These days, massively expensive computer scanning technology can assist the professionals in this task, but it still takes years and years of training to get right.
The presence of flaws, the clarity, and the color of the cut diamond can vary from its raw form. For example, green diamonds often only demonstrate their green color on the outer layers, and they can be colorless beneath the surface.
A good yield for the common octahedral structure of the diamond is about 50%. So a 2 ct. rough diamond might be expected to yield a 1ct. round-cut diamond. Different cuts might have different yield expectations for different rough gems.
All of this is subject to risk. The cutter may fail to maximize the yield of the final product, or may reduce its value through damage. The assessor may fail to detect an internal problem that will make cutting difficult or will impact the final product. This risk is factored into the computation of the value of the diamond.
The typical formula for establishing a purchase price for a rough diamond is as follows:
- Estimate what type of yield it is likely to produce,
- Estimate the characteristics of the final cut diamond
- Estimate what market price that cut diamond would fetch
- Discount this price for the risk of damaging the gem during cutting
- Decide what profit margin you need to make this effort worthwhile
- Consider whether the market will bear that profit margin at this time
This is an incredibly complex process that makes or breaks the businesses of dealers in the rough diamond trade. It takes years of practice and expensive equipment to get right, and at the end of the day, there is a major element of random chance.
How do I value gems?
Since my goals are to produce an optimal finished piece of jewelry, which is a different goal from those who value rough gems for their cutting potential, I am often able to achieve substantial savings in this market for my customers.
I also find the results far more beautiful and personal than the homogeneity of cut and polished diamonds. While rough gems can be more difficult to set due to their irregular shape, I have developed techniques for setting them securely and safely.
I source my gems from a variety of gem dealers, who are often selling their gems to collectors, but I also work with some dealers who primarily supply to people who intend to finish the diamonds. In either case, I do not typically do enough volume to dominate pricing negotiations, but I have a good eye for mismatches between cut and rough aesthetic value.
Dealers selling for collectors or for jewelry use often have a higher proportion of better-looking rough diamonds curated for me to peruse, but this comes at a premium. Dealers who deal in the supply chain typically work in higher volumes and have a less well-sorted collection, but there can be some great deals in that world when I get access to it.
I do my best to find gems that will lead to the best finished jewelry at the best price, and I get to pass that savings along to my customers. My goal is to ensure you get the best piece of jewelry you can for your money, so that you will be proud to wear it out in public. (Most of my business comes from referrals, so it really is in my self-interest to ensure this.)
For custom work, I typically pass through the price of acquiring gems directly when I acquire them for a specific piece. I also often work with gems that were purchased by customers, though I recommend checking with me beforehand to talk about how a particular gem might work with different setting options.
For line work, I try to find a reliable source of gems of a particular type, and establish line prices that cover the range of prices for the gems. That said, it's pretty difficult to do for rough diamonds, so some variation might be necessary.
I can customize any piece of line jewelry to use a different type of stone if you prefer, in which case it generally falls in the category of custom work.