Thursday, January 18, 2007

Rocky Road II; Grading The Colorful

Rocky Road II; Grading The Colorful

By Richard W. Wise, G.G.


Mirror, mirror, on the wall, who will be the biggest of them all? An Interview with Michael Haynes

After several near misses last Saturday I spent a bit of quality phone time with Michael Haynes, President of Collector’s Universe (CU). First a little background: You will recall from Part I that CU has acquired American Gemological Laboratory (AGL) the only major gem laboratory that quality grades colorful gemstones. The acquisition that took place in early 2006, with a 3.5 Million upfront payment to AGL President C. R. Beasley with an additional 3.5 million payable in five years.

Collectors Universe is a public company traded on NASDAQ with a market capitalization of 120 million dollars. The company bills itself as “the leading provider of value added authentication and grading services of high-value assets”. According to Haynes; last year CU certified 1.8 billion dollars worth of collectables including 65% of all stamps certifed, 85% of sports cards and perhaps 45% of all coins.

AGL is CU’s third acquisition on the road towards its publicly stated objective of becoming the major purveyor of gemstone quality reports "maybe not tomorrow, or next year, but within the foreseeable future. As part of its strategy CU had previously acquired GCAL a diamond grading laboratory and Gemprint the company that has patented a method of taking an identifiable “fingerprint” of a cut diamond.

Michael Haynes is a passionate pitchman. He sees CU’s coming dominance of the certification business as a win-win for everyone. Why he asks isn’t the fine gemstone business experiencing similar growth levels as other luxury products? According to CU’s president, it’s a matter of consumer confidence or the lack thereof. He contrasts the experience of buying a Hermes scarf with that of buying a ruby necklace. You go to a Hermes store. There is no question of authenticity or value; it is only a question of price. You go to the jewelry store and you enter a world of doubt. Is it real? What is it really worth? “Money”, says Haynes, “travels the path of least resistance.” Buying an expensive piece of jewelry, all you have to rely on is the seller and he is after all the seller. Independent third party certification by a publicly traded company will end the doubt and level the playing field, Haynes puts it succinctly: “remove doubt, increase sales”.

As any professional will attest, much of what Haynes says is spot on. Consumer doubt is a component of a large majority of missed sales opportunities particularly high-end sales. Doubt coupled with professional ignorance and competitive low-balling have made gem and jewelry selling a competitive mine field (read: my blog post: Getting an Appraisal; Some Do’s and Don’ts.)

Next I asked Haynes how he foresees CU succeeding where so many have failed? “By establishing an promoting a consistent standard.”

How about competition from GIA? Haynes barely skips a beat. “That’s a question”, he suggests, “you should be asking GIA”. With CU’s triumvirate of acquisitions Haynes appears confident that CU has covered all the bases. If the Gemological Institute of America wishes to compete in colored stone grading game, it is GIA that will be playing catch-up.

Laboratory One-upmanship:

At the season opener, Tucson 07, CU will throw out the first ball of the season. Its AGL subsidiary will announce a plan to offer a range of gem certificates. From being one of the most expensive labs, AGL is about to become the least expensive offering a range of modestly priced grading reports. In a separate conversation last week, AGL President Cap Beasley outlined the new program. The Lab will offer certification on a series of levels called Fast Track. For $25, Fast Track I will offer a credit card sized report providing just authentication and enhancement. Fast Track II will add the 4 C’s for $50 and for $75 Fast Track Premier will add type as in Burma-type, Paraiba-type, etc.

Collectors Universe is aiming at the consumer. The aim is to produce a document that is easily understood by the retail buyer. Perhaps this new format will accomplish that. AGL’s current offerings are not all that easy to understand. Though in recent years the lab has added a Total Quality Integration Rating (TQIR) to summarize all of the various grading factors and give the gem an overall quality grade.

Book Review

The Sancy Blood Diamond

In this historical potboiler, author Susan Ronald traces the history of the Sancy Diamond from the mines of Golconda to its current tranquil resting place in The Louvre. As the largest and most famous diamond in Europe from the Fourteenth through the Seventeenth Century, The Sancy had many admirers and several owners; from Charles the Bold through Napoleon, kings, queens, cardinals and dukes, some of them major players on the stage of European history.

Ronald does more; she is a knowledgeable political-historian and along the way she weaves the Sancy’s chronology into to woof and weft of European political history.

As Ronald shows, The Sancy and by extension other famous gems did more than add luster to the crowns of European Monarchs. Goldsmiths were Europe’s first bankers. It should come as no surprise, therefore, that long before the present conflicts in Africa, large and famous gems provided the bloody collateral of choice, pledged by Europe’s crowned heads to the financiers who bankrolled Europe’s major conflicts.

Ronald’s account is authoritative, fast paced and reads like a Machiavellian analysis of history. From the killing fields of Nancy, to Charles I’s beheading, to the court of the Sun King, Ronald shows how sex, power and greed as represented by The Sancy, fueled the politics of Europe. The book was published in 1995, don’t know how I missed it. The book is particularly relevant given the present interest in conflict diamonds. Highly recommended. For more on the stone and the author:

Ronald, Susan, The Sancy Blood Diamond, Wiley & Sons, New York, (hardcover) $27.95, $18.45 on Amazon.

Into Africa:

For the first time in twenty years I will miss the Tucson Gem Shows. I will be in Brazil and cruising the coast of West, South and East Africa until mid-February. Meanwhile the contest goes on. (see the previous post, Rocky Road I) Guess the value of the French Blue diamond in 1698 and win a free copy of my book, Secrets Of The Gem Trade, The Connoisseur’s Guide To Precious Gemstones. The Secrets website will also not be functioning for orders. If you need it right away order it on (See below)

Interested in reading more about real life adventures in the gem trade? Follow me on gem buying adventures in the exotic entrepots of Burma and East Africa. Visit the gem fields of Austrailia and Brazil. 120 photographs including some of the world's most famous gems. Consider my book: Secrets Of The Gem Trade, The Connoisseur's Guide To Precious Gemstones. Now only $26.95. You can read a couple of chapters and order online:

Buy it on Amazon:


Richard W. Wise said...

And the winner is!!! Karim Moussally. Here is his very well researched answer:

The 1691 inventory lists "a very big violet diamond, thick, cut with facets on both sides in the shape of a heart with eight main sections or faces, clear and of a lively water, weighing 67 1/8 carats, set in a pin of gold with enamel back, and an estimated value of 400,000 livres."

Assuming your valuation of 1 livre = $1,941, we get a calculated value of $776,400,000. Looking at the numbers you posted, it's clear that you missed a decimal point and that the exchange rate you intended to use was 1 livre = $194.1

This means that the "new" diamond was valued at $77,640,000 for a per carat price of $1,156,648. Compared to the initial valuation at 220,000 livres for a stone weighing 112.1875 carats (per carat price of $380,631), we see an appreciation in value of nearly 204% on a per carat basis and nearly 82% based on a total value for the stone. That's due in part, I'm guessing, to the recut, but also probably to the increase in the "market" over 22 years.

How'd I do?

Source used was Hope Diamond: The Legendary History of a Cursed Gem by Richard Kurin.

This all assumes that your unit conversion of livre -> dollar is accurate. Ignoring inflation, and taking the value of the livre as set by Charlemagne at one pound of silver, todays market price would be $204.32. Of course this would probably be the livre parisis, not the livre tournois (which was the standard unit for accounting from the 13th century until the revolution. Since 4 livres parisis equal 5 livres tournois... that means that the value of the livre tournois today would be $163.46 based on the Charlemagne standard.

However, Louis XIV's reign saw instability in the valuation of certain coins. Based on the standards set in 1726, one Louis d'or (6.75g gold) was worth 24 livres. Since 6.75g of gold on today's market is worth approximately $150.31, that sets the value of one livre in 1726 at $6.26. Clearly there are issues when attempting to properly value items across the centuries. Wink


I have not read his reference. My authority is Morel, The French Crown Jewels. This author notes that 200,000 livres was worth 215 kg of gold. As Karim points out the livre had been devalued between 1669 when Tavernier sold Louis XIV "The French Blue" and 1691 when the inventory was taken.

Another interesting point, The Sancy, at that time the largest colorless diamond known in Europe and originally thought to be more valuble than the French blue, was valued at 200,000 livres in 1691. According to Ronald (The Blood Sancy Diamond) that would be equal to 24 million making the livre worth $121.00 today. This is pretty close to Karim's computation.

What was the livre actually worth in purchasing power in the Seventeenth Century, difficult to assess. Using the current value of gold provides one standard, however, Tavernier bought his barony, Aubonne for 55,000 livres and sold it for about 130,000 fifteen years later. How much would an entire town in Switzerland be worth today? Louis's brother,the Duke of Orleans had an annual income of about 1 million livres.

What is interesting is the phenomenal increase in value given a recut from 112-69 carats.

Again, Great job and contratulations to Karim Moussally!!

vel said...

I've always wondered which are the rarest diamond. Red, purple or violet?