When you buy a diamond you get hit with a lot of letters and numbers. VS, SI, F color, etc. But who determines what number goes with what diamond? With diamonds the grading for color and clarity is a major determinant in price. Unfortunately it’s also a way that the unscrupulous can capitalize on the unsuspecting. Have you ever seen an ad where the jeweler promises that the stone will appraise for more than the sale price? How can that be? In some cases, jewelers use labs that are cheaper and/or have more open standards. This issues was discussed by a group of diamond jewelers, merchants and other concerned people at theRapaport Conference on Diamond Certification on June 6 at the JCK Las Vegas show.

One stone can get two different grades from two different labs. There is no absolute standard for diamond grading, it always comes down to the decision of the grader. The Gemological Institute of America created and determined the standard in the 1950s but any lab can grade stones using the same nomenclature and consumers may not be aware that there is any difference between the standards of grading labs. The GIA naming standards are not patented and can be used by any lab and have created a common language through which to discuss diamond quality. But it may be misleading to the consumer if labs which do not use the GIA grading standards use the GIA nomenclature.

This has led to a situation where there are price differentials in certificates. Is the same diamond worth more with a certification for a different lab? Some labs have a reputation for being more lenient. This is something that jewelers and diamond buyers know but not something that is clear to the consumer. The GIA charges more for certification and is known to be stricter.

What does this translate out to? Here’s a slide that was shown at the talk. My apologies for the blurriness but I think it’s important to show. The GIA certificates are used as the base as they are the standard and most well-regarded. As you can see there’s quite a difference.

The consumer may know what they are looking for in terms of a color and clarity grade but the ability to grade diamonds is a specific trained skill. It’s a bit of a subjective science. This may not make a much of a difference to the consumer when buying a diamond as long as they see that the stone comes with a report. But it can have a big impact later when the consumer tries to sell the same stone and the quality of the report comes into question. It could change the value that a person could receive for the stone. If a consumer is looking for a H color VS1 diamond for example, they might comparison shop from store to store. At one store a stone with that grade from one lab might be significantly higher or lower than a same sized stone with that same grade from another lab. It’s hard for the buyer to know which stone is actually the better deal. Consumers don’t generally ask what lab the certification is from and aren’t aware that this can contribute to the perceived value of the stone. Quality standards are not absolute when it comes to diamonds which is one of the reasons that they are so hard to commoditize.

The consumer is protected to some extent because if a retailer sells a stone with a report a particular quality stated then they are liable to deliver a stone of that quality. The current reasonable assumption is that because grading is subjective a variance of one grade in either direction is understandable. There is no government standard attached to diamond grading in the U.S. and the jewelers in the audience at this conference seemed divided as to whether government intervention would be beneficial. Some lamented the fact that reports are even necessary, wishing that a level of trust existed between jeweler and buyer. The problem is that there are always bad actors in any industry and fakes, frauds and mistakes abound. The certificate provides the consumer with the idea of some protection but this talk definitely showed that the level of security afforded certainly varies.