( Editor note: The survey excerpted below was a very extensive and scientifically performed study. The actual report includes scores of pages and charts but for convenience, only the introduction and conclusions are presented here. The critical points are made and a diligent reader can draw the needed conclusions here from )
Prices of Diamonds Graded by 3 Different Laboratories
Diamond Grading Laboratory Survey
by David Atlas, Garry Holloway, and Leonid Tcharnyi
August 6, 2004
Abstract
An analysis of trading prices showed that the trade adjusts prices based on expected strictness of diamond grading reports.
To confirm or deny the trades expectation of grading strictness, the authors conducted a small 17 diamond independent survey of GIA, AGS and EGL USA lab grading. The diamonds were anonymously submitted from three different sources.
In half the cases AGS clarity grading was one grade stricter than GIA. In two thirds of cases EGL USA color grading was one grade softer but clarity grading in a third of cases was stricter than GIA. Industry opinions were confirmed and by large each lab graded consistently to its own apparent standard, considering the high degree of human subjectivity involved.
In conclusion: The study confirmed that business to business Internet listings effectively priced diamonds graded by these laboratories
1. Introduction
Diamond prices are dramatically dependant on the 4C's (carat, color, clarity and cut); a difference of only one color or one clarity grade can result in price variations of 3% to more than 25%.
For many years, buyers and sellers determined diamond grades by themselves. But in the 1953 the Gemological Institute of America (GIA) established a grading system for color and clarity and began using this system in its independent diamond grading laboratory. Today there are many large and small gemological labs worldwide that offer third party diamond grading services. Trade insiders believe that some labs are stricter and more consistent, while other labs are softer (i.e. give higher grades) or may be less consistent. Consequently it is believed the diamond trade adjusts diamond prices based on the lab that issued grading reports.
Certificate Price Calculation Factors
| Certificate |
Factor |
AGS |
1.028 |
CGL |
1.000 |
GIA |
1.000 |
HRD |
0.981 |
IGI |
0.944 |
EGL |
0.935 |
NONE |
0.935 |
Today's consumers are learning more about diamonds and pricing. Websites and others have contributed to the public's greater knowledge. Many have learned that diamonds graded by GIA-GTL or AGSL are priced at premiums compared to diamonds with reports from other labs. The current study compares lab strictness but importantly, for the first time that the authors are aware of, this survey includes a pricing and value comparison.
The prices of a significant quantity of diamonds, more than 50,000, are publicly listed on-line and GIA, EGL USA, and AGS graded diamonds were represented in large enough quantities to be included in this study.
The reason for a grading lab to give softer grades is to get more business from diamond manufacturers, retailers or wholesalers who want to increase their profits by selling diamonds given higher grades at higher prices. However, EGL USA has claimed recently to have been grading stricter.
This survey is the first in a decade that the authors are aware of, was not intended to prove that any lab is better than another. Diamond grading is a subjective art. The consumers should be aware that a grading report is that labs opinion, and not a fact. This was illustrated by the fact that none of the 17 stones were given the same grade for both color and clarity by all 3 labs. One of Pricescope's main intentions with this survey was to compare the relative trading values of diamonds graded by various labs.
Conclusion
"Diamond Prices and Grading Q&A Forum" is the title of Pricescope's Forum. This surveys aim was to demystify diamond pricing, not to endorse or to damage any lab. The findings of the market pricing component of this survey were based on a large statistically sound population, but used only 16 or 17 stones for lab grading comparisons. The lab grades did however confirm some of the market myths, such as EGL USA color grades can be softer and AGSL clarity grades can be stricter than GIA-GTL. However, we found no support for reports of EGL USA color grading being more than one grade different to the other labs. In fact all lab grades were within a single grade of difference for color or clarity. The most interesting finding was that softest average grading did not lead to a higher average buying price.
One dealers myth is: "One must buy the diamond, not the paper", however we found the B2B marketplace adjusts pricing for its expectation for grading strictness. But does the retail market pass on those price differences? Perhaps this is a separate survey for the future?
Pricescope initiated this survey to clarify diamond grading myths and facts which are passed on via public Pricescope forum from diamontaires, appraisers and retail jewelers to consumers. As advocates for the diamond buying public, Pricescope strives to demystify diamond buying for the public in the belief that helping people buy diamonds will grow diamond sales. Many in the industry consider the idea of educating consumers heretical, but as a leading industry figure, Martin Rapaport, said: "If the educated consumer is your nightmare, then go out of business. Consumers won't get less educated." Pricescope estimates that more than 80% of the money spent on larger diamonds in USA follows some research on the Internet.
After reading this article, many consumers will feel safer buying a diamond graded by the market leader, GIA. Others might be willing to trade brand value for a lower cost EGL USA graded diamond. Yet another person may be attracted by the stricter AGSL grading. Consumers who
learn about this survey may drive a harder bargain for an EGL USA graded diamond in retail stores.
Myth and Facts
- "Diamonds graded by GIA-GTL have better resale liquidity”. Fact
- "GIA is the strictest laboratory in the world" – Myth. According to this survey 8 out of 16 diamonds were graded more strictly by AGS. EGL tended to grade clarity more strictly.
- "AGS is very strict" – A fact overall, but AGSL color grades can be softer than GIA-GTL.
- "EGL certificates are not worth the paper they are printed on" – Myth. Although in 12 cases out of 17 EGL graded color softer, EGL clarity grading was as strict or stricter as GIA.
- "GIA has the strongest international diamond brand" - Fact.
- "It is safer to buy a GIA graded diamond" - Myth. Any diamond grading report is an opinion, not a guarantee.
- "GIA invented the grading standards and independent reports"- Fact.
- "GIA or AGS reports guarantee grading accuracy" – Myth. This survey shows that both labs can grade either softer or more strictly and this affects a diamonds price.
- "Consumers should consider an appraisal by a qualified and independent gemologist" – Fact. This can ensure a diamond meets a consumers criteria and to avoid possible switching errors (two occurred in this survey).
- "Diamonds with GIA reports trade for higher prices". Myth - AGSL diamonds often trade for more.
- "GIA has trained more gemologists world-wide than all the other schools combined" - Fact.
- "Excellent / Excellent GIA graded diamonds are more beautiful" – Myth. An Ex / Ex diamond can have poor proportions; symmetry and polish have less effect on diamond beauty than proportions.
- "GIA-GTL charges more than other labs" – Fact. This adds to the cost.
- "GIA-GTL takes longer to grade a diamond than other labs". Fact - This adds to the cost.
- "GIA-GTL provides the least useful cut grading information of any major lab" - Fact
- "You can get ripped off buying an EGL USA graded diamond" - Myth. Even if you buy a one higher color EGL graded diamond than you require, GIA-GTL may grade it a color grade lower and the same clarity, but you will probably pay less.
Over time labs may adjust their grading strictness, and new myths and market pricing may evolve. For this reason those interested in this industry and practice will do well to follow events and consult future studies which track and report such changes.
Consistency
One initial aims of this survey was to compare grading consistency; this was not an easy task. To compare consistency a benchmark is needed; the question is to which benchmark should consistency be compared? The industry generally looks to the GIA-GTL as the standard or benchmark of diamond grading. However GIA-GTL also gave a different grade for the same stone (# 10). While EGL USA was softer with color grading, it was consistently softer. However, a 16 or 17 stone survey is too small to draw any conclusions on consistency.
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