The alternative asset class of Fancy Color Diamonds (FCDs) has exhibited strong growth between 2005 and 2014. FCDs, across pink, yellow and blue colors have increased in value by 167% on average between January 2005 and September 2014.
Looking in more detail at their performance throughout the years, the value appreciation of sub-categories has differed quite significantly. These differences were driven not only by general economic swings, but also by the varying price points and uses of different FCD categories. For example, most categories of yellow diamonds are considered more of an ornament and hence more sensitive to end consumer spending whereas rarer pink and blue diamonds are considered as a means to store and display wealth, hence more resilient to economic swings.
Between January 2005 and January 2007, FCDs value experienced on average a steady 12% year over year growth, driven by increased consumer exposure to this asset class. Between January 2007 and January 2008, as the market overheated and liquidity was abundant, FCD prices leaped accordingly by 25%, mostly led by pink diamonds which grew by 26%. During this 12 month period, Fancy Vivid Pink appreciated by 44% on average.
As surging markets transitioned into a deep recession, the stark differences between different FCD products became more apparent. Yellow diamonds suffered a 45% decline in value between January 2008 and January 2009 as most retail consumers lowered their spending and demand plummeted while supply remained steady. The following year, Yellow diamonds increased 52% in value and continued to increase in value to fully recover their pre-recession value by Jan 2012. On the other hand pink and blue diamonds, with a more limited supply and held mostly by investors with longer horizons, were not put up for sale throughout the recession and hence held steady in value.
As the markets slowly recovered, trading in FCDs picked up driven mostly by growing demand in Asia. The wholesale market, which prior to 2009 was made up of only a few companies that exclusively traded FCDs, grew almost overnight to more than 10 companies exclusively trading FCDs and more than 50 companies trying their luck by adding FCDs to their product mix in order to enjoy their higher margins. As these new dealers invested with the expectation of capturing higher margins on FCDs, they opted to hold product for longer periods of time. Therefore, the already limited supply of FCDs contracted further as product remained off the market until prices appreciated significantly. This trend continues and can be observed in the overall 108% price hike measured since June 2009. During this period the strongest growing category, Fancy Pink diamonds, increased in value by 209% while the slowest growing category, Fancy Vivid Blue diamonds, only increased in value by 53%.
Retail brands have also shifted their focus to FCDs past 10 years. Extravagant colors have become a key element of haute couture and helped drive up prices of exceptional stones with special virtues. Luxury brands who previously only purchased FCDs occasionally started promoting heavily marketed special collections. One of the more recent public announcements was Tiffany’s debut of “Colors of Wonder” in September 2012. This collection, which was on display for public viewing at Tiffany’s Fifth Avenue flagship in New York, was hailed as “a milestone in its great diamond heritage”.
These luxury brands are trying to capture market share from Graff and Moussaieff who have been leaders in this space for decades. The heightened exposure in marketing and press has contributed to the increasing demand for high quality FCD product, particularly from Asian consumers who covet luxury branded FCDs. An example of this effect is the surge in demand for exceptional yellow diamonds which increased their value tremendously, placing them on par with Fancy Blue and Fancy Pink diamonds.
We expect these trends to continue and influence FCD price appreciation. As new supply from mines continues only as a trickle and more players try to enter the FCD trading space, one should expect FCD trading to become more challenging and product to be even more scarce.
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