Diamond Evolution: Why the 4Cs is no longer an adequate pricing system

by Habiba Abudu | August 15, 2019 12:50 pm

By Renée Newman

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Using the 4Cs (colour, clarity, cut, and carat weight) to explain diamond pricing was developed by the Gemological Institute of America (GIA) in the 1950s. At that time, cloudy diamonds were considered ‘industrial-grade’ stones and were not set in jewellery. As such, transparency was not a concern, nor was treatment status, as almost all diamonds were untreated. Likewise, there were no separate price lists for rounds or other shapes—therefore, it didn’t matter that ‘cut’ was used interchangeably to refer to both the shape of the stone and the quality of the cut. Further, the only lab-grown diamonds that were available were tiny stones, which were used as industrial abrasives.

Times have changed. These days, cloudy and hazy diamonds are often used in jewellery, but their clarity grade on lab reports does not necessarily reflect their lower transparency and value. It’s also become much more common for diamonds to be treated to improve their colour and apparent clarity grades—and the price difference between treated and untreated diamonds can be significant. Additionally, cutting style and shape are distinct price factors from cut quality and many gem labs now issue diamond reports with cut grades. High-quality lab-grown diamonds have become widely available and sell for much less than mined, natural diamonds. When all of these listed factors are considered, it becomes very clear the 4Cs is no longer an adequate pricing system.

Diamond buyers should be aware of the following eight basic price factors:

• Colour
• Carat weight
• Cut quality (i.e. proportions, finish, and light performance)
• Cutting style and stone shape
• Clarity (i.e. degree to which a stone is free from inclusions and blemishes)
• Creator (i.e. natural or lab-grown)
• Transparency (i.e. degree to which a stone is clear, hazy, or cloudy)
• Treatment status (i.e. treated or untreated and type of treatment)

These eight price factors are explained below. To remember what they are, simply refer to them as the 6Cs and 2Ts.

Price factors explained

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Colour

When it comes to diamonds, the less colour there is, the higher the price of the stone (with the exception of fancy colours). D is the highest and most rare colourless grade, while S to Z are the lowest colour grades and result in a stone that is light yellow. As the grades descend toward Z, the amount of colour present increases; in turn, the price of the diamond decreases.[3]

Each letter on the grading scale represents a narrow colour range; not a specific point. In its diamond grading course, the GIA states each of its masterstones “marks the highest point—or least amount of colour—in that range. A diamond with slightly less colour than the H masterstone is considered G-colour, and so on.” A GIA G-H split-grade masterstone represents the middle of the G grade. It doesn’t have as much colour as an H, but has more colour than a straight G grade.

Brown and grey diamonds are graded on the same scale, but with some modifications. GIA graders describe brown diamonds darker than K with the letter grade and an accompanying coloured diamond grade (e.g. ‘faint brown’ for K to M, ‘very light brown’ for N to R, and ‘light brown’ for S to Z). Thus, an L-grade brown diamond would be graded as ‘L-faint brown.’ The GIA does this to distinguish brown stones darker than K in the normal range from yellow stones in that range. Light brown diamonds typically sell for less than light yellow diamonds.

The GIA grades grey diamonds with more colour than the J masterstone using their fancy-colour system. As such, a K-colour grey diamond would be graded simply as ‘faint grey’ without a letter grade. For more information please read GIA Diamonds & Diamond Grading Course and Diamond Grading Lab Manual (2006).

Diamonds with a natural body colour other than light yellow, light brown, or light grey are called ‘fancy colour diamonds.’ These stones often cost significantly more than those that are colourless. For example, a 1-carat natural pink diamond could sell for five to 15 times more than a D-colour diamond of the same size and quality.

Fancy colour diamonds are graded with the stone in the face-up position, as the cut can influence the apparent colour. Likewise, the price of these stones is based on the face-up colour—the more intense the colour, the higher the price.

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Carat weight

In most cases, the higher the carat weight category, the greater the per-carat price of the diamond. A carat is a unit of weight equaling 0.2 grams. The weight of small diamonds is frequently expressed in points, with one point equaling 0.01 carat. In diamond districts, you may also hear the term ‘grainer.’ This word is used to describe the weights of diamond in multiples of 0.25 carat (or one grain). Therefore, a ‘four grainer’ is a 1-carat diamond.

If a diamond is advertised as having a weight of 0.25 points, this can be misread as it being 0.25 carats in weight; in actuality, 0.25 points is equal to 0.0025 carats. It is important for your customers to understand the correct weight of the diamonds in the jewellery you sell, or you could be accused of misleading them.

Cut quality

Cut quality (or ‘make’) refers to the proportions and finish of a stone. This is a crucial factor, and can affect a diamond’s price by as much as 50 per cent.

Two of the main considerations of cut are:

1. Do you see brilliance all across the stone when you look at the diamond face up? Diamond brilliance should not be interrupted by large dark areas.
2. Are you paying for excess weight?

The cut of a stone should be judged with an unaided eye and a 10x magnifier. Look at both the face-up and profile view of the diamond.

Cutting style and stone shape

In today’s market, round diamonds cost more than pear and marquise shapes and emerald cuts. The effect a stone’s shape has on its price varies, depending on its size, demand, and available supply. For example, there were periods in the past where marquise shapes sold for more than rounds.

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Likewise, square-shaped diamonds can cost as much as 15 to 30 per cent less than rounds. This is because there is less weight loss from the rough when cutting squares, and, typically, there is less of a demand for squares.

Different shapes can be cut using various faceting styles. The GIA has simplified the description of these cutting styles by limiting them to three basic types: brilliant cut, step cut, and mixed cut.

Brilliant-cut square diamonds (or ‘princess cuts’) may cost slightly more than step-cut squares, depending on size. These stones have the same shape, but different faceting styles. Patented and trademarked cutting styles typically sell for more than generic cuts of the same shape.

Cutting style has a significant impact on the price of fancy colour diamonds, as the face-up colour of these stones can be intensified by its shape and faceting style, and because the rough is so expensive. For example, a 1-carat, intense yellow round diamond can cost anywhere from 10 to 100 per cent more than a stone with the same weight and colour grade that is a radiant, brilliant-cut rectangle or square with bevelled corners (depending, of course, on the stones and the dealer selling them). This is because the rough of the round diamond must be darker than that of the radiant to achieve the same intense yellow face-up colour—cutters can’t play as much with the angles and shape of rounds to maximize their colour. In short, the stronger the colour of the rough, the higher the price; the final price of the diamond is based largely on the cost of the rough.

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Clarity

Clarity refers to the degree to which a stone is free from external marks (blemishes) and internal features (inclusions). Five factors of clarity grading are size, number, location, nature, and relief.[7]

There are 11 GIA clarity grades which are defined on GIA.edu as:

• Flawless (FL): No inclusions or blemishes are visible to a skilled grader using 10x magnification.
• Internally Flawless (IF): No inclusions and only blemishes are visible to a skilled grader using 10x magnification.
• Very, Very Slightly Included (VVS¹ and VVS²): Inclusions are difficult for a skilled grader to see under 10x magnification.
• Very Slightly Included (VS¹ and VS²): Inclusions are minor and range from difficult to somewhat easy for a skilled grader to see under 10x magnification.
• Slightly Included (SI¹ and SI²): Inclusions are noticeable to a skilled grader under 10x magnification.
• Included (I¹, I², and I³): Inclusions are obvious under 10x magnification and may affect transparency and brilliance.

Transparency can play a significant role in determining the value and desirability of a gemstone; in most cases, the higher the transparency, the more valuable the gemstone.

Creator

As lab-grown (or synthetic) diamonds have become readily available, the prices of these stones have dropped considerably, and are now well below the cost of mined (natural) diamonds. For example, today’s consumer is able to buy a 0.5-carat, lab-grown pink solitaire diamond, set in a rose gold-plated sterling pendant, for only $500.[8]

Transparency

The GIA and the often-cited reference book Gems by Robert Webster define ‘transparency’ as the degree to which a gemstone transmits light. (Mineralogists use the term ‘diaphaneity’ to describe this, but gemmologists prefer ‘transparency’ because it’s easier for laypeople to understand.)

There are five categories of transparency:

• Transparent: objects seen through the gemstone look clear and distinct.
• Semi-transparent: objects look slightly hazy or blurry through the stone.
• Translucent: diamond is cloudy and milky like frosted glass.
• Semi-translucent or semi-opaque: only a small fraction of light passes through the stone, mainly around the edges.
• Opaque: virtually no light can pass through the gemstone.

Transparency can play a major role in determining the value and desirability of a gemstone; in most cases, the higher the transparency, the more valuable the gemstone.

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While clarity and transparency are interconnected, they are also distinct. If a cloudy spot is found in a transparent diamond, the cloud is a clarity feature; however, if the entire diamond is cloudy due to submicroscopic inclusions, the cloudiness is a matter of transparency. Further, if the diamond is very cloudy, this will likely affect the clarity grade. In most cases, though, clarity grades are not an indication of the degree of transparency of a diamond. This is because:

• Diamond grading labs don’t normally take into account subtle differences in transparency (for example, hazy and slightly cloudy diamonds with VS clarity grades); and
• Diamonds with obvious transparency problems are seldom submitted to labs for grading—more often than not they’re mounted in bargain-priced jewellery.

Treatment status

Unlike coloured gemstones, most diamonds are untreated; however, this is changing. Diamonds may now undergo fracture filling, laser drilling, coating, irradiation, heating, and high pressure high temperature (HPHT) treatments in order to improve their clarity, colour, transparency, and marketability.

Diamonds coloured by irradiation or HPHT treatment are a fraction of the cost of natural fancy colour diamonds. For example, a 1-carat irradiated ‘fancy’ green diamond of VS clarity might retail for around $5000 per carat; however, if the same diamond were of natural colour, it would likely sell for more than $200,000 per carat, as natural green diamonds are unusually rare. In May 2016, a 5.03-carat VS² fancy vivid green diamond, the ‘Aurora Green,’ was auctioned by Christie’s for $16.8 million (or $3.3 million per carat).[10]

Treated green diamonds are much easier to find and are often produced from low-priced stones that are brownish or below-L colour—in essence, the customer is paying for the cost of the low-priced diamond and the treatment process.

Most fracture filling, laser drilling, and coatings can be detected by skilled jewellers and appraisers. Accurate detection of irradiation and HPHT normally requires the special expertise and sophisticated equipment of a qualified independent gem laboratory.

As previously stated, purchasing a diamond accompanied by a lab report is vital, as this paperwork verifies whether or not a diamond is treated. Major labs are able to identify the vast majority of treated diamonds; if they can’t, they will indicate that the treatment status is undetermined.

With the proliferation of treatments and synthetic diamonds, it is good practice to request that natural diamond suppliers identify their diamonds as untreated and natural on invoices, especially when dealing with new vendors. This practice will help protect jewellers from claims of possible misrepresentation if a diamond turns out to be treated. If a stone is identified as enhanced or processed, this means it is treated. The specific treatment should be identified and clearly explained to a customer prior to a transaction taking place. Attractive untreated diamonds are still readily available and pose the fewest potential problems for jewellers.

Conclusion

While the 4Cs were once a comprehensive method of pricing diamonds, the diamond industry has evolved and introduced more pricing factors. Even though it would be unreasonable to expect jewellers to discard their 4Cs charts and related advertising materials, trade members and consumers should be aware of the additional elements that affect diamond value.

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Renée Newman, BA, MA, GG, is a gemmologist, lecturer, and author of 13 gem and jewellery books including the Diamond Handbook: How to Identify & Evaluate Diamonds, 3^rd Edition. She wrote her first book, the Diamond Ring Buying Guide, in 1989 while working at the Josam Diamond Trading Corporation in downtown Los Angeles. A new 8^th edition will be available in February 2020. For more about Renée & her books, see www.ReneeNewman.com[12].

 

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