Why are large stones losing their luster at auction?

Leah Meirovich

After a slew of headline-grabbing prices, top colored diamonds have started tapering off. Experts say market fatigue may be denting the wow factor.

At the spring auctions this year, a number of showstopping colored diamonds grabbed the spotlight, selling for eye-watering amounts that only the top 1% to 2% of society could bear to part with.

At Sotheby’s Hong Kong in April, the De Beers Cullinan Blue — a 15.10-carat, fancy-vivid-blue diamond — fetched $57.5 million, well above its $48 million high estimate. In May, Christie’s Geneva sold the 205.07-carat, fancy-intense-yellow Red Cross diamond for $14.3 million against a presale price tag of $10.5 million. The Williamson Pink Star made headlines as late as October; Sotheby’s garnered a cool $57.7 million for the 11.15-carat, fancy-vivid-pink stone, nearly three times its $21 million high estimate. Even during the worst of the Covid-19 outbreak, sales of large colored diamonds seemed to flout the slowdown that other luxury items were witnessing.

But in the latter half of the year, these phenomenally rare gems seem to have lost steam. Some are not selling at all, like the 5.53-carat blue from De Beers that Sotheby’s Geneva offered for $15 million in November. Others, like the 18.18-carat Fortune Pink — which sold that month at Christie’s Geneva — are only just passing their low estimates. And then there was the 13.15-carat, fancy-vivid-pink stone that was mysteriously withdrawn before its December 6 auction, despite having an upper estimate of $35 million.

While these instances may not represent a permanent shift, they do beg the question: What’s different now, and why are these once sought-after jewels floundering? There are a number of reasons, experts say, ranging from the economic downturn to a general sense of market fatigue.

Changing of the guard

In the past, Russian and Hong Kong billionaires were the primary buyers of large diamonds. However, the sanctions against Russia due to the Ukraine war have limited participation in auctions, as have strict Covid-19 measures in China that have curbed travel to Hong Kong.

Although Chinese buyers have agents, relatives and friends in Hong Kong to purchase for them, I think people are being extremely cautious right now due to a fresh wave of the virus and its effect on the economy,” explains Harsh Maheshwari, executive director at Hong Kong-based colored-diamond dealer Kunming Diamonds. “Right now, they’d rather sit tight and stay liquid, and probably spend on other things such as travel, Christmas, and potentially the Chinese New Year.”

Amid the disappearance of traditional buyers, the Middle East has emerged as a strong contender for large, high-quality colored diamonds, but the region has shown a strong preference for stones larger than those currently on offer, reports Quig Bruning, senior vice president and head of jewelry at Sotheby’s New York.

“I think what we are seeing is a bit more selectivity in terms of what people are really looking for,” he says. “People are just being a little pickier about these individual stones.

In the shadow of recession

It’s debatable whether inflation and the prospect of economic recession are actually preventing people from spending large sums on big colored diamonds. Prices are rising, and money is tight for the general public, but those factors are unlikely to be deterring the crème de la crème of society.

While the world economy is struggling in general right now, the 2% of the [population] that buys these stones is not struggling as much,” says Jonathan Abram, director of Hong Kong-based jeweler and dealer Ronald Abram.

But even if affluent buyers aren’t suffering financially, Bruning believes the current market may give them pause when it comes to high-value luxury items. “I think there is a little bit of hesitation for some people to pull the trigger on $10 million-plus purchases.”

It’s also possible that some of the jewels at the fall auctions were priced a bit high for the market, suggests Jill Burgum, executive director of fine jewelry for Heritage Auctions.

When you start working with gems in that echelon, pricing it correctly becomes very challenging,” she remarks. But beyond that, the auction houses may be trying too hard to play up the diamonds’ market value.

If an auction house tries to establish too strong of an estimate, or is trying to sort of drive a price, to set the market, that would be a bad approach to take,” she says. “It’s better to go in softer, attract more people, and get a bidding frenzy going so people don’t drop out.”

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Source Rapaport

Photo © Williamson Pink Star Courtesy of Sotheby’s.