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Antonio Cecere, Monaco Diamond Exchange Founder & VP[/caption]
The Monaco Diamond Exchange (MDE) was incorporated in Monaco last October. As a non-profit association its aim is to “support investors as well as consumers in their diamonds transactions by educating, informing and advising members”.
Monaco Life speaks to Antonio Cecere, principal of Cecere Monaco and MDE Founder and Vice-President, about the principles that govern fair trade in the diamond industry and the impact of lab grown diamonds and colour treated diamonds on the trade.
ML: Why do diamonds play such a predominant role in alternative investments?
Diamonds were always crucial to diversify a well-balanced investment portfolio. Their ability to retain, pass on and relocate wealth has traditionally defined them as the alternative investment of choice, while favourable taxation and the ability to hedge against inflation rendered these untraceable assets extremely attractive to investors. The projected widening gap between supply and demand and the recent instability of the financial markets acted as catalysers and caused further appeal to this class from investors with a mid- to long-term view.
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ML: In recent years, diamonds have become an investment product promoted to investors of all levels. Are they suitable for everyone and are all diamonds the same?
Diamonds may be divided in three sub-classes: Investment Grade, Gem Quality and Industrial Grade. The latter finds many applications, from drilling to cutting and today synthetic manmade diamonds fulfil most of the demand. Gem Quality is mostly suitable for the jewellery and watches sectors, as they meet certain visual standards, particularly in clarity and colour, and include all shapes. Investment Grade diamonds are a product for investors and meet exacting criteria that include for example fluorescence, symmetry and polish.
In recent years, we witnessed the proliferation of exchange-traded funds containing portfolios of diamonds as well as physical diamonds packaged by retail banks as investment for their customers. In these cases we noticed that the lines dividing Investment Grade and Gem Quality diamonds have become blurry, and products that were mostly suitable for the jewellery and watches sectors were sold as investment products to investors at inflated prices.
In this view MDE was founded as a non-profit to advise investors and bring transparency to an industry that has in its lower fringes become victim of speculation from the financial sector and yet is rich in opportunities for the sophisticated investor. Alongside education, MDE is at the forefront of the battle against conflict and synthetic diamonds.
ML: What are conflict diamonds and why is it important to ethically source diamonds?
The United Nations (UN) defines conflict diamonds as diamonds that originate from areas controlled by forces or factions opposed to legitimate and internationally recognized governments, and are used to fund military action in opposition to those governments, or in contravention of the decisions of the Security Council.
In the late 1990s, conflict diamonds became subject of much debate during the conflict in Sierra Leone. This issue was not isolated to Sierra Leone, but also in Liberia, the Ivory Coast, Angola, the Democratic Republic of Congo and the Republic of Congo rebels were using them to fund conflicts.
In 2000, the global diamond industry started to take its first steps to eradicate the trade of conflict diamonds by working closely with the UN, governments and non-governmental organizations like Global Witness and Partnership Africa Canada that consequently led to the creation of the Kimberley Process Certification System.
ML: What is the Kimberley Process and what impact has it had on the diamond trade?
The Kimberley Process Certification Scheme (KPCS) was formally adopted in 2003 to stop conflict diamonds entering the legitimate mainstream diamond supply chain.
Today, 74 governments have incorporated the KPCS into their national trading regulations and this initiative has reduced the commerce of conflict diamonds from 4% to less than 1%. On this basis we can say that the impact that the Kimberley Process has had on the diamond trade has been significant.
The problem is not the diamonds themselves, but the rebel groups who exploit diamonds along with other natural resources to pursue their illegitimate activities.
Most diamonds come from countries at peace where they have been able to invest the revenue generated from diamonds into the development of infrastructure, schools and hospitals for the good of the communities in which diamonds are found. Canada, Australia, Russia, Botswana, Namibia, South Africa and Tanzania are perfect examples of what conflict-free diamonds can do for the wellbeing of local communities.
Mike Asscher, sixth generation of the Asscher family, is Honorary President of MDE and his father, Edward, a member of the board of the World Diamond Council, was one of the forefathers of the Kimberley Certification Scheme. This is a testimony of the responsibility that MDE has as the central point of communication to ensure compliance with the regulatory and voluntary systems in order to prevent the trade of conflict diamonds and commerce with countries embargoed by the UN.
ML: You mentioned synthetic diamonds. What are they and how do they differ from natural diamonds?
A naturally mined diamond is unique among minerals. It is the allotrope of carbon in which the carbon atoms are arranged in the specific type of cubic lattice called diamond cubic. It is the hardest known natural substance, it is the greatest conductor of heat, it has the highest melting point of any substance and it has the highest refractive index of any natural mineral.
Synthetic diamonds are widely used in abrasives, in cutting and polishing tools and for general industrial use. A synthetic diamond, also referred to as an artificial or lab-grown diamond, is a diamond produced in a manmade process known as HPHT (high-pressure high-temperature) or CVD (chemical vapour deposition). Artificial diamonds are made of the same material as natural diamonds.
The properties of synthetic diamonds depend on the details of the manufacturing processes, however, synthetic diamonds have properties such as hardness, thermal conductivity and electron mobility that are different from those of the naturally formed diamonds.
The presence of synthetic gems on the market created concerns in the diamond trading business and, as a result, special spectroscopic devices and techniques have been developed to distinguish Type IIa diamonds that are likely to be synthetic from Type Ia diamonds which make 98% of natural diamonds.
At Cecere Monaco, for instance, where we specialise in Investment Grade diamonds, we pay particular attention to this aspect and exclusively trade in naturally mined diamonds that are certified to be natural by third-party laboratories like GIA (Gemological Institute of America), as well as screening each diamond with a spectroscope to ensure compliance. We do so to ensure that only the gemstones that meet these exacting criteria are included in an investment portfolio.
MDE as a non-profit association offers its members free testing of diamonds both as loose stones and when set in jewellery to ensure that confidence in the product is established beyond any doubt.
ML: As you described the mineral composition of natural diamonds, it would be interesting to understand the difference between colourless and fancy coloured diamonds from a geological perspective and if manmade processes can influence the appearance of colour?
Fancy colour diamonds as investment offer a substantial opportunity to profit as the supply-demand balance is more acute than in the colourless diamond market. Only one in 10,000 carats mined are fancy coloured according to the Gemological Institute of America (GIA), so very little supply enters the market each year.
Diamonds are principally made of carbon. However, there are other elements that are part of the diamond’s internal structure and these influence the colour grade of fancy coloured diamonds.
While most diamonds fall in the D to Z colour range, nature occasionally produces diamonds with a naturally occurring blue, brown, pink, yellow or even green hue. The geological conditions required to yield these colours are rare, making diamonds with naturally occurring shades infrequent and highly prized.
Fancy colour diamonds are appraised less for brilliance or fire and more for colour intensity. Shades that are deep and distinct are rated higher than weak or pale shades.
From a geological standpoint, trace elements, structural irregularities, and radiation generally cause fancy diamond colour. Yellow diamonds, for example, count a presence of nitrogen in their atomic structure, while brown, pink, and red diamonds have coloured graining, which results from structural irregularities in the crystal lattice – sometimes in combination with an impurity. Blue diamonds have traces of boron with possible presence of hydrogen and green diamonds have been subject to natural radiation affecting the colour. The grey and violet diamonds are characterised by the presence of hydrogen although violet diamonds are still being studied for exact cause of colour. Black diamonds have dark inclusions or impurities, which are great in number and evenly distributed throughout a diamond and orange diamonds have structural irregularities in combination with the presence of trace elements like nitrogen, though exact cause of colour is still being studied.
There are three methods to artificially enhance the colour saturation of a diamond: irradiation with high-energy subatomic particles; coating as in the application of coloured layers; and the exposure to HPHT.
The first two methods result in a surface colour alteration hence may be applied to polished diamonds only. Inversely, HPHT treatment may be applied to both rough and polished diamonds. These treated diamond are primarily destined to the jewellery sector while natural fancy coloured remain king in the investment sector.
Today spectroscopes are able to detect these manmade modifications. This further validates the importance of acquiring diamonds that are certified by independent laboratories, like GIA, that can beyond any doubt establish whether the colour is of natural occurrence or artificially enhanced.
Article first published January 15, 2017.