Pink Investment Diamonds
Think diamonds? Think pink.
In mid-2009, Lucia was jogging along the Gold Coast seafront. With her 50th birthday just a couple of years away, the property investor, who declines to reveal her surname, decided she wanted to treat herself to something really special.
"It was a big run, an hour-and-a-half run," she says. "I ended up at the other end of town, at the Mirage. I've got bare feet, jeans and a gym shirt on."
Her state of attire didn't stop Lucia from walking into Calleija Jewellers' store at the Marina Mirage shopping centre on Main Beach.
"Have you got something that's really special?" she recalls asking owner John Calleija. "I'd always wanted a pink diamond. I've had whites and things through the years, but pinks - they're very rare."
He pulled out a 2-carat red diamond - a stone at the top end of the already-rare pink diamond range. It had a price tag of $1.85 million.
"It was an octagonal shape, absolutely amazing," Lucia says. "I said: 'I've got to have it'."
The Gold Coast resident then agreed a deal with Calleija that was more department store than high net worth individual. She put the stone on lay-by for the next two years. She says she didn't want to pay for it all at once, and only wanted to take possession of it before her birthday at the end of 2011.
"We just came to an agreement, with monthly payments," she says. "Something like $80,000, sometimes $60,000 - it depended on the month."
Shades of value
Lucia's case is unusual, but then again, the super-rich who put some of their wealth into the niche asset that is pink diamonds often are quirky. This is an extreme asset class that attracts extreme types. One rule of thumb is that a pink diamond is worth anything from 20 times the value of its white equivalent. The darker the hue - up the scale to red - the greater the disparity.
"With pink, you are looking for people who have an understanding that pinks are very different to white diamonds," says Linneys Jewellers chief executive David Fardon, who used to oversee Rio Tinto's annual tender sale of its best pink diamonds.
"It's often people who have already acquired other jewellery and particularly diamonds, who are looking for something that does differentiate."
Another client of Calleija's has an unusual investment strategy.
"He said: 'I am putting together six strategic locations around the world that I've chosen as safe places to have a bank vault and I'm putting together an egg cup inside the vault full of rare pink and blue diamonds'," jeweller Calleija relates. "'Next to it, I'm placing 500,000 euros in cash. They're what I call my bolt holes'."
Rare and running out
Pink diamonds aren't just pretty stones. They're statistical freaks of nature, accounting in 2009, for example, for just 30,000 of the 160 million carats of rough diamonds produced - less than 0.02 per cent of the total. In addition, supply is limited - a point jewellers and producer Rio Tinto exploit to the full.
A decision to mine underground at the open-cut Argyle diamond mine in WA will extend the life of the mine that produces up to 90 per cent of the world's pink diamonds until at least 2020, but the miner says Argyle has already lived out two-thirds of its expected mine life.
While other diamonds are coloured due to trace elements they contain, extreme pressure and heat distorts the crystal lattice of some stones as they form, making them absorb light in a way that gives them a pink colour. The stones tend to be smaller than white or other coloured diamonds, with typical weights being one-third of a carat, half a carat or one carat.
Then there's the colour. Pink diamonds can have purplish, rosé, champagne or blue shades, with red at the top of the heap.
"The more saturated or the more intense they are, the more valuable they are," Fardon says.
If their origins are unusual, so is the way investors treat them. While pink diamonds are an investment, they are also pretty stones people like to wear and the vast majority of buyers acquire a pink diamond to wear.
"About one in 20 strictly buy it for investments," Calleija says. "There are not many who buy them loose. They're usually in a piece of jewellery."
Positively in the red
Over the two years it took Lucia to pay for her stone, it doubled in price. It is now set into a ring that was last year valued at $4 million.
"This red diamond has more than doubled in price, as opposed to property," she says. "I would rather put more money into another red."
They certainly have a track record of price appreciation. Data produced for Rio Tinto shows that between 2002 and 2010, the index price of Argyle Pink Diamonds' tender - based on an annual sale event of the highest-quality 50 or so carats' worth of stones - rose 108 per cent in price. Over the same period, an adjusted index of white diamonds rose just 22 per cent.
Fardon says prices of pink diamonds have continued to rise between 10 and 15 per cent in recent years, driven in part by greater awareness of the stones' rarity, but with an added driver that will be familiar to sellers of luxury goods the world over - the growing market of high net worth individuals in China and India.
"An emerging market of the last three or four years for pinks has been mainland China," he says. "If you went back five years ago, that did not exist in terms of even being on the horizon."
Chinese in the diamond hunt
India already has a long-standing tradition with diamonds - nine out of every 10 diamonds in the world is cut in India - but China's interest is newer. In January, New York-based diamond trading network and price data-supplier Rapaport took a buyers' group of Chinese companies to the Antwerp Diamond Trade Fair for the first time.
Even once the Argyle mine's supply is exhausted, dealers anticipate a thriving secondary market. The global financial crisis has hastened growth of this market, as previous purchasers have sold their stones. Calleija estimates the number of sellers has risen by as much as 50 per cent since the crisis began.
At least Lucia got the stone she really wanted. That doesn't happen for all jewellery lovers.
"I've got some clients who buy one to wear and one that goes in the safe," Calleija says.
Too rare to wear
This was the case three years ago, he says, with a Tasmania-based client who paid between $10,000 and $20,000 for a pink diamond ring for his wife to wear. He spent another $200,000 on one solely intended for investment.
"The ring he ended up putting in the safe was a really superior diamond," Calleija says. "It actually fitted his wife and he had it resized so it didn't fit - in case she was tempted to go into that safe and start wearing it."
Lucia doesn't wear her ring when jogging. But she did wear it to her 50th birthday party. She doesn't intend to sell it, as she wants it to be an heirloom she passes on to her daughter.
"I don't know anyone else who's got one, and that's great," she says.