Overpriced Diamonds
August 18, 2018
The truth about diamond investment
September 18, 2018

Paying double but getting less

Everyone enjoys a spot of acting and in the interests of informing you, our Investment Edge reader, we indulged in some play acting recently.

Let’s pretend for a moment that you are a reasonably savvy person, and have a spread of investments. Perhaps you have already purchased some diamonds through us and appreciate the low margins and the general benefits of certain diamonds in 2017 – maybe it’s their portability or their protection against wobbly banks and currencies, it doesn’t really matter – let’s say that you are sold on the idea of having some diamonds tucked away in a vault or under your bed.

Now, let’s also say that your partner has been dropping hints that they would LOVE some beautiful diamond earrings for their birthday. They want the earrings to look stunning and impress everyone who sees them, so it will have to be high quality stones. You know this will be more expensive than say, a book voucher or the petrol station flowers that normally suffice, but how much more expensive exactly?

Bear in mind that the platinum setting for earrings is not expensive nor particularly difficult for a skilled craftsmen to make. In fact, it’s a pretty run of the mill job, so it’s cheap. Let us pretend that the cost of the platinum is £300, then add the labour charge and some profit into the mix, to make it £500. Let’s double that figure so we are giving even the most expensive and exclusive jewellers a fair chance to appear competitive in our little experiment. We shall thus assume it costs £1000 to set two stones into platinum – it doesn’t, but let’s keep pretending anyway, OK?

We called 5 of the best known and most respected jewellers in London posing as a dutiful husband looking to buy some diamond earrings for his beloved wife. However, she is a picky lady. The stud earrings must each be 1ct each, round cut, E colour, VS1 clarity with GIA certificates for reassurance.

Before we made the calls, we checked what the same stones would cost to buy from us (put us to the test, just click here). Remember, we will add a fictional £1000 on to the price of the stones to cover the setting in platinum.

There were lots of stones available to buy that matched the specification of our ‘pretend wife’ exactly. Most ranged from £6000 to £8000 per stone. Remember, these are all GIA certified stones (click here to find out why this is important). The stones are from the same suppliers and dealers that all jewellery firms use to source their diamonds from, so if you take one thing from this article, make it this fact:

The stones we sell are the same as the stones in the boutiques of London, Dubai, Geneva and Hong Kong.

Hopefully you will take more from this post than just this fact, but if one fact is the limit, make it that one.

Of the 5 jewellery firms we called, 4 were able to give us a price on the day and were able to supply earrings that partly matched the mystery lady’s spec. In all cases, they could not supply stones of quite the right quality, but surely this would be reflected in the lower price? Perhaps.

One world renowned jeweller was unable to give a price for the earrings he had in stock as ‘it’s such a personal thing and the phone is so impersonal’ before adding that ‘it was company policy not to give any prices over the phone’. I wonder why? Perhaps it’s because their prices are so keen, they didn’t want to shock me? Perhaps they were just genuinely excited to meet me in person at their ‘fantastic and very comfortable’ showrooms on Bond Street? Perhaps.

Now, back to the 4 companies that DID quote me. All were very efficient, friendly and charming which was a definite plus.

The cheapest quote was for £19,500 and the most expensive was £32,900. But, the lowest quote was for stones that were of a far lower quality than we specified, for example, they were SI1 clarity rather than VS1, a huge difference and like comparing a Ferrari with a Ford.

That leaves us with the 3 other options, prices quoted ranged from £25,500 to £32,900. These quotes were all for stones that were closer to the spec but interestingly, even they were only able to supply lower graded stones, for example, F colour rather than E, and VS2 rather than VS1. Not huge differences, but significant all the same. Perhaps it would be reflected in the price this time?

So, let us say the price of buying the diamonds from London Diamonds is c£14,000 for two 1ct, E colour, VS1 clarity, round stones. Let us also say that the cost of setting them is £1000, again, it’s far less than this, but let’s keep pretending. A total cost of £15,000 for you to create the perfect present. Not cheap, but at no point are you paying huge margins, other than on the setting….you get the point by now.

So why are world famous jewellers charging double this amount for stones of a lower quality?