Diamonds Sparkle Plenty

For money, not love, cool investors put ice on fire

Poor Elizabeth Taylor. In June, when she finally sold that 69.42-carat, $1.1 million diamond that Richard Burton gave her ten years ago, she did not get her asking price of $4 million.

The pear-shaped trinket fetched only $2.5 million. Still, that was a nice little appreciation of 127%. On a smaller scale, a one-carat flawless gem that sold for $1,400 in 1968 and $6,500 in 1976 now goes for $22,000 or more. These perfect stones are almost unavailable today, but even lesser quality large diamonds are rising at 25% to 40% a year.

Diamonds are becoming an increasingly popular investment --that is, for money, not love.

Some buyers, notably the Europeans and Japanese, prefer tangibles to flimsy paper currencies in inflationary times; others live under unstable governments and find comfort in the fact that diamonds are compact and portable. Gems worth $1 million fit easily into the palm of a hand, while $1 million worth of gold weighs 278 Ibs. Soon after the Shah fled Iran last winter, fine one-carat and larger stones started to turn up in the Swiss market. Arabs are so eager to exchange their oil wealth for diamonds that they sometimes buy packets of uncut gems from dealers sight unseen at 50% markups.

Lately Americans have become interested in investing in diamonds. About $500 million worth of gems were sold last year to U.S. investors, and experts think the volume this year could top $750 million, or almost 20% of the total U.S. diamond trade.

As an investment, diamonds are chancy. The bare minimum for a one-carat sparkler is $5,000 and the difference between one grade of color and another can be as much as $8,000 per carat. So many con men prey on the unwary that the New York State attorney general's office has assigned its securities bureau to track them down. The savvy buyer insists that the dealer have the Gemological Institute of America or the European Gemological Laboratory certify the diamond as to cut, color, clarity and carat weight.

Serious buyers also patronize well-known dealers and usually buy stones that weigh a carat or more. But there are tremendous markups and no bargains, though buyers tend to do better with bigger stones. Jewelers' retail markups range around 100% and, generally, the smaller the stone the larger the markup. Prices vary from city to city even for the same grade of stone.

A reliable San Francisco jeweler sells a flawless one-carat E-color stone--one grade below the practically unobtainable one-carat, D-color flawless, which is the finest stone--for $18,000. That same grade diamond, including local taxes, sells in Amsterdam for $16,000, in New York City for $20,000, in Munich for $21,350 and in London for $31,250.

A shortage exists for high-quality stones of one carat or more, but there is a glut of smaller, lesser quality gems, and prices for them have declined as much as 20% in the past six months. DeBeers, the South African cartel that controls at least 85% of the world's rough diamond trade, plans to increase its output from 15 million carats this year to 19 million by 1983. But these stones lie in new, very deep mines, and the heavy equipment used tends to break up the larger, rough stones into many small pieces.

Since there is no trading market for diamonds, the smart investor who wants his money back is forced to sell at wholesale what he bought at retail. He can expect to receive only 40% to 60% of the current retail price. Fortunately, most diamonds are still being bought to slip on the finger rather than to tuck into the safety deposit box. Three-quarters of all first-time brides receive diamond engagement rings, as do half of the women marrying the second time around. For the average modest diamond engagement ring, men spend $700, up from $500 in 1978. But even for these investors in happiness the message is the same: the buyer had better be prepared to hold onto his investment for a long time to come out ahead, or at least even.

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