What to Know about Buying Fancy Colored Diamonds

In November 2015, Hong Kong billionaire Joseph Lau paid a combined $77 million for two fancy colored diamonds at auctions in Geneva — $48.4 million for a 12.03-carat vivid blue at Sotheby’s and $28.5 million for a 16.08 carat vivid pink at Christie’s.

According to a recent Barron’s article, fancy colored diamonds will continue to attract buyers and set record prices in 2016. Here’s an update on the economics of fancy colored diamonds — and how to buy them.

Why so valuable?

Why are fancy colored diamonds so valuable and rising in price? To put it simply: lack of supply. There are fewer color diamonds in the world — only a fraction of a percent of all diamonds are colored, and supply has consistently lagged behind demand in all colors.

In addition to rarity, every fancy colored diamond is a unique, one-of-a-kind jewel. Pink diamonds are one of the most in-demand colors, and have shown impressive investment performance over the years. Fancy intense pink diamonds have increased more than most.

Consider these numbers: In 2003, a 3.58 carat fancy intense pink pear shaped diamond sold for $115,000 per carat! Just seven years later in 2010, a 4.59 carat fancy intense pink diamond was sold for an amazing $625,000 per carat — that’s a 443 percent increase over its 2003 price!

Blue diamonds are also very popular, and have shown a marked increase in value over the years. In 2002, a 2.18 carat fancy intense blue emerald shaped diamond sold for $180,000 per carat.

Nine years later in 2011, a 2.28 carat fancy intense blue marquise shaped diamond traded at $400,000 per carat — a 122 percent increase!

Pink: the rarest of them all

Most of the growth is from pink diamonds, which has risen 315 percent in value in 10 years, and blue diamonds, surging 154 percent in that time, according to the Fancy Color Research Foundation reports. By comparison, larger white diamonds have risen in value too, but much more slowly, at a growth rate of 5 percent a year for the last six years.

About one in 10,000 carats of diamonds are fancy colored diamonds of gem quality, and of these, only 0.1 percent are pink. Nearly all the supply of pink diamonds in the world comes from the Argyle Mine in Western Australia, which owner Rio Tinto is expected to close within five years. That will have a huge impact on pink diamond prices, according to industry experts.

What to know before buying a fancy colored diamond

If you’re interested in purchasing a fancy colored diamond, it’s important to understand the four main factors that determine a fancy colored diamond’s value: hue, color saturation, color purity, and availability. The diamond’s color, including intensity of color, and hues are considered the diamond’s most important qualities.

Fancy colored diamonds are found in 12 different colors with more than 90 secondary hues and nine intensity levels within the 234 color combinations. The rarer a diamond is in color, the more valuable it will be. And if the color richer and/or more saturated, the diamond will also be more valuable. Like white diamonds, a colored diamond’s clearness or purity of the color will also increase its value.

But unlike white/clear diamonds, inclusions can be desirable in fancy colored diamonds. Inclusions are technically flaws, but in fancy colored diamonds, they can create unique tones and beautiful flashes of color.

According to eBay.com, photos on websites may not always accurately capture the quality of the stone. It may actually be lighter, darker, more sparkly, or less sparkly; if possible, so see the gem in person.

Whether a diamond is pink, blue, brown, or any other color, the hue may vary in its richness. With natural diamonds, the majority of colored stones do not have very vibrant colors. If they do, they tend to be more expensive. If a diamond is color enhanced in a lab, it will usually have a more vibrant color. However, some gems are created to have a pastel color.

Yellow, pink, blue, black, and brown diamonds are some of the most popular colors. Also consider the setting for the stone — smaller colored diamonds may accent a larger white diamond nicely. The color of the type of setting is also important to consider. Some types of metal may complement certain colors better. Whenever possible, it is best to choose a diamond before selecting the setting.

While there may be occasional price fluctuations caused by economic and other factors, the price of fancy color diamonds has shown to hold more value and be less volatile than other investments, including other valuable gemstones.

With the supply of fancy colored diamonds limited, growing interest from the market, and the ingrained uniqueness of each stone, fancy colored diamonds should stay on an upward course for years to come.

This article is for general information purposes. Talk to your financial advisor before making any investment decisions.