Wealthy clients investing in significant jewels
By Emma Johnson
Feb 2, 2009New York--The sinking economy has meant a lot of bad news for independents: Retail is down overall and jewelry sales were off for many over the holidays.
One ray of light in an economy dominated by a plunging stock market and failing real estate sector stands to be a boon for jewelers: High-end customers are turning to significant gemstones as investments, independents recently told National Jeweler. Industry leaders report similar patterns throughout the marketplace.
"Historically, diamonds have been a proven asset on multiple levels, and independent jewelers are seeing this trend today," says Sally Morrison, director of the Diamond Information Center. "In extremely soft economic times, people look to very hard assets, and diamonds prove to be less volatile than pretty much anything else I can think of."
Levinson Jewelers in South Florida has seen a 100 percent increase in sales of jewelry for investment purposes, says owner Mark Levinson. He says clients like to add jewels to their investment portfolio--especially because the asset is easily transportable to the best market.
"If the euro is stronger than the dollar, you can have your diamond in pocket and take advantage of that," Levinson says. "You can't put gold or platinum or real estate in your pocket. But you can put millions of dollars of diamonds in your pocket. In that way, it is discreet--it's not like a piece of real estate you have to register. Plus, it's an investment category that is fun and exciting. If you own a stock, you get a certificate. With a beautiful diamond, you can wear and enjoy and have fun with it."
B.W. David Leavitt, owner of Antique and Estate Jewelry in Rancho Santa Fe, Calif., says business has been booming among his high-end customers who are scooping up significant investment jewels.
"All of the biggest diamonds I've ever sold have been to men who buy as investments to hoard," Leavitt says. "If it's over 20 carats, it's for an investment. They don't let their wives wear it--even if it is in a ring. Today, there is more interest in that than in the past. People understand that diamonds are a good investment, and they're hedging against inflation."
Leavitt says his customers are also interested in rubies and sapphires from Myanmar, a country that is the subject of a gemstone embargo. High-quality Burmese stone supplies are increasingly rare and, therefore, increasingly valuable. Leavitt also does swift trade in certified stones.
"Anytime I get a necklace with all certified diamonds, I could sell 11 of them," Leavitt says. "A couple of times I've gotten investment portfolios--a whole box of 60 GIA [Gemological Institute of America] certified diamonds for $2.5 million to $3 million. I sold every single one of them--either loose, or set in one piece or a suite."
Three years ago, Leavitt sold a necklace of 149 total carat weight, D-color, Asscher-cut stones for $525,000, and in late November, sold it for his client at $1.42 million.
"What other investment could I have sold in the worst week of the year?" he asks.
Morrison, Leavitt and Levinson all attribute this trend to an increasingly sophisticated clientele who are better educated about both finance and jewelry than ever before.
"In the 1987 stock crash, everyone stopped buying jewelry," Leavitt says. "People were just blindsided. But now people are more world-savvy and are looking for other ways to invest."
Historically, significant diamonds have proven to be much more solid investments when compared with their smaller counterparts.
The Rapaport Group reported that as of Sept. 15, half-carat diamond prices were up 9 percent over the previous year, while 5-carat diamond prices were up a whopping 40 percent during the same period. Prices are poised to grow by double to $40 billion by 2016, while mine production is projected to grow by just 50 percent to 20 million carats, according to Rapaport Group, which forecasts diamond demand.
Over the long term, the market for small diamonds has been rocky.
Rapaport last year told MarketWatch that the value of a half-carat diamond in 1980 would have fallen 20 percent by 2006, and a 1-carat diamond would have dropped by 40 percent during that period. By comparison, a 5-carat diamond's value would have tripled in the past 25 years.
While all of the experts interviewed confirmed they are also seeing this trend, the very exceptionally high-end corner of the market does seem to be showing weakness.
Market leaders took notice of Sotheby's Nov. 20 Magnificent Jewels Sale in Geneva, where just 60 percent of the 371 lots actually sold, and many of those items went for below expected prices. These include an 8.02-carat fancy-pink diamond ring that fetched $1.32 million--just below its pre-auction estimate--and a natural pearl, emerald and diamond necklace, which went for the same price, at the low end of the pre-auction estimate.
Meanwhile, the 71.73-carat Lesotho diamond, which was expected to command from $3 million to $5 million, did not sell, nor did a 10.48-carat fancy deep-blue diamond, which the auction house expected to sell for between $6 million and $9 million.
Similarly, Christie's Dec. 2 Hong Kong jewels sale sold 63 percent of its 289 lots on offer. Sotheby's Magnificent Jewels auction in May, by contrast, reached near record levels.
At press time, Laurence Graff, of Graff Diamonds, paid a record $24 million at Christie's London for the Wittelsbach Diamond, a 35.56-carat blue diamond that made history as the priciest diamond ever sold at auction.
Leavitt says his very wealthy customers are also buying jewelry simply for the sake of buying jewelry.
"I was worried after the market crashed that we would die this season," he says. "But I've done my best year ever. My clients have lost craploads of money, but they still want a Christmas present."
Editor's note: This story first appeared in the January 2009 print edition of National Jeweler.