0.59ct non-ideal cut round created $3k, good or bad deal??

[pkanawha]

Re: 0.59ct non-ideal cut round created $3k, good or bad deal

DenverAppraiser - Is the cost of a diamond really only about 25% of the retail cost of the diamond?! And if this is true, for example, for diamonds retailing for $5,000, would it also be true for a diamond retailing for $100,000? My guess (and I'll admit that it's only a guess) would be that a markup of that magnitude would be appropriate for a diamond retailing at the low end of the spectrum, but would be too high for one at the higher end. After all, there would be much the same handling, shipping, tracking, etc. for an inexpensive diamond as for an expensive one. On the other hand, I'm sure it's a lot easier to turn over a $5,000 diamond than a $100,000 one....

I'm definitely with you that synthetic diamonds will not depress the cost of natural ones but if anything will increase them. Some years ago when music was first recorded on discs or cylinders, also when it was first played on the radio, musicians were afraid that live music would go out of style and that they would be without jobs. Instead, we've had our appetite for music piqued to the extent that we now listen to it 24/7 on our ipods, in our elevators, and yes, in the form of live music. The same will happen to our appetite for natural diamonds. One day kindergarten graduates will expect to get a 5 carat synthetic diamond ring to commemorate their graduation. By the time they graduate from college/get married/have a child they'll celebrate by getting a natural diamond (or ruby, emerald, etc.) piece of jewelry.

 

[SLCDJ]

Re: 0.59ct non-ideal cut round created $3k, good or bad deal

Ha ha! a 5 carat diamond ring on a kindergartner would look ridiculous! However, the same lab-grown 5 carat stone (of reasonable quality) will still cost in the upper 5 and even 6 digits in some cases, so it probably won't ever happen as presumed in the hypothetical situation that you outlined. I know a great number of us are looking forward to the day that good quality 2 carat blues and whites arrive and would gladly pay the price for such a gem.

It pays to remember that in the case of crystal growing, the laws of production still follow the laws of nature and not the usually assumed laws of economy. A 5 carat polished gem would feasibly be a 8-12 carat rough, which would require a tremendous amount of good science to do on any form of a commercial scale, especially in a white diamond! The brains behind that science alone would never be cheap.

 

[denverappraiser]

Re: 0.59ct non-ideal cut round created $3k, good or bad deal

With any analysis like this, it’s important to understand what we’re counting. Terms like ‘real value’, ‘markup’, and ‘retail’ are heavily loaded with content that people are assuming. For starters, yes, the costs and distributions vary wildly across the price spectrum. Manufacturing and selling $100,000 diamonds is a completely different exercise from manufacturing and selling $20 diamonds and the markup, whatever it is you mean by that, is completely different as well. $100,000 diamonds are so rare that it largely doesn’t matter. They exist in their own universe. $3000 - $10000 diamonds, on the other hand, follow a well trod path and this is what I’m talking about.

Diamonds do not come out of the ground in a form that’s ready for the end consumer. There’s a LOT of work left to do. Presumably it was free for the first guy who found it. It’s just a rock after all and he picked it up off the ground. In that sense the ‘cost’ is a lot less than 25%. He needs to pay the land owner, he/she probably had some bosses and coworkers who didn’t find anything that day, security people, bankers, tax collectors, tool suppliers and others. In Hollywood these are often portrayed as abusive relationships, and often they are, but even in the happiest of cases, these people are all paid and they are all essential participants. Are they part of the ‘cost’ or the ‘markup’?

What about some of the people later in the chain? Diamonds can take anywhere from a few hours to several days of individualized labor on the cutting wheel for example. That guy’s paid. He has a whole web of people surrounding him as well ranging from the equipment manufacturers, the electric company, security, banking, shipping, more tax collectors and on and on. He’s taking a significant risk that it won’t come out as expected and a few of them don’t. He has to charge more for the ones that do in order to cover the loss on the ones that don’t.

What about the lab? Advertising people? Packaging people? Landlords? Insurance companies? Shipping companies? ALL of these people and more get a piece of the pie, and all provide a component of value that’s essential to the final product. Are they ‘cost’ or ‘markup’?

I’m not trying to defend the pricing structure and marketing path of diamonds here. It’s not as unreasonable as the popular press likes to make it out to be but it is what it is and there are some big numbers that get tossed around. I’m pointing out that nearly all of these things are the same whether the diamond comes out of the ground or out of a lab. With my 25% number above (a very rough estimate by the way), what I’m calling the cost from the mine is the first time something recognizable as a gem diamond gets sold. This would normally be when the mining company sells to the cutting company. Everything before that I’m calling part of the cost of mining and everything after that I’m calling something else. This is an arbritrary line but it equates nicely with the point that the lab produces a saleable crystal. From that point forward, the processes and costs are pretty similar. Every synthetic is hand cut using the same tools and the same sorts of workers as their natural counterparts and it costs abut the same. Bankers, taxmen, shippers, labs, appraisers, advertisers, retailers et.al. charge about the same either way. I wouldn't call them markup but, whatever they are, they're not going away without a fight, they're not cutting their prices, and it's not about the natural/synthetic issue.