The Gem Market is Upside Down
by Robert Genis

Like Alice in Wonderland, the gem market is upside down today.  It is time to recognize top quality colored gem markets are up dramatically in price overseas.  We are specifically talking about Burma and Colombian goods.  How can this be?  Wasn’t it always assumed the prices were lower in the source countries than in the United States? After all, the US is the leading buyer of precious gemstones and don’t we dictate the prices we will pay?  Well, as Bob Dylan once sang, “The times they are a-changin.” Speculation is rampant as to why this is occurring. People who watch the Colombian emerald market state the locals have more faith in emeralds than they do it the Colombian peso.  The same is said about the Burmese and the kyat.  Right now, the highest prices paid for material is in Bogota and Yangon.  How could this be?  After all, don’t the people buying at these prices in these source countries have to resell the goods to others,?  Don’t these stones need to be resold in the US or some location around the world?  You would think so but maybe not!

One credible theory is the recent high prices overseas is the direct result of the mafia/drug money.  For example, in the past Colombian drug dealers diversified their profits and bought  local real estate.  Once the government learned of this, they confiscated the property.  Now, with Colombian emeralds, you are talking about another story.  You can easily buy $10 million worth of stones and hide them anywhere.  If trouble brews and you need  a safe haven, simply pick up your stones and leave the country.  So some are speculating the emerald market is a cocaine driven market. The same thing appears to be happening in Burma also.  Of course, Burma is the leading supplier of heroin to the world.  What to do with the profits?  To an Asian, nothing would be better then putting your wealth into unheated  Burma ruby or sapphire and and unenhanced spinel. This is especially true after the banking problems  in Burma which limits withdrawals to absurdly small numbers per diem.

So what is happening is that legitimate dealers are having to compete with these new prices.  Not only is the amount of fine goods way down in production, but the prices of these goods are extremely high.  Many dealers come home from these  overseas sources with  few goods because they do not believe their American clients will pay the new prices.  Well, if we want to remain a major player in the gem world we need to accept the fact prices are higher and step up to the plate.  If $3.00 per gallon gas did not stop us from driving SUV’s, surely a few thousands of dollars per carat for a fine Burma stone shouldn’t stop us either.

Another way to look at this market is through the eyes of investors.  People are afraid of inflation for the first time in decades.  When that occurs, investors search for goods to diversify their portfolios with small, private investments or hard assets. The recent auctions prices are evidence of this. How else do you explain the 8.01 carat oval-cut Burmese ruby sold for $2,200,000 or $274,656 per carat.

If we study economic history, it often helps us to recognize cycles or patterns.  The last time gemstones really increased dramatically in price was the late 1970’s and early 1980’s.  The colored gem market is usually the last market to really take off after real estate, oil, diamonds, rare coins and precious metals.   Consider how similar conditions are today compared to those times.  It is only a matter of time before gems increase here in the United States.

GIA Bribery Scandal
Rapaport
By Martin Rapaport
11/4/2005

The Gemstone Forecaster has supported the GIA for over 25 years.  We have always stated any diamond should be purchased with a GIA Diamond Grading Report.  The reason is the GIA grading system was always the toughest grader than any other labs. As we reported in the last issue of the Gemstone Forecaster, accusations have surfaced regarding the bribery of GIA diamond graders to change the grades of diamonds submitted.  

Just the accusations causes deep concern for the entire gem industry.  We can only imagine when this story hits the national media, how it will negatively affect the diamond and jewelry market. Martin Rapaport is the owner of the Rapaport Diamond Report.  His letter is so compelling  and asks just the right questions it need reprinted. Minor parts were edited for space. (ED)
 
The diamond industry has the right to know: What has been going on inside the Gemological Institute of America (GIA) laboratory?

Have diamond graders and/or supervisors been taking bribes to upgrade GIA diamond grading reports? How long has this been going on? When did it stop? How many graders and stones have been involved? Who are the bribers? What is the GIA doing to clean up its mess?

Before going on, we at Rapaport have a few full disclosure statements of our own to make. Rapaport Group Companies in Israel, Belgium, and India operate GIA take-in windows whereby we accept diamonds for grading by GIA. We handle shipping to and from GIA laboratories, customer service and payments for lab services as well as marketing and promotion of GIA laboratories. The scale of our operations with GIA is large and financially significant for the Rapaport Group.

Furthermore, this writer firmly believes in the values that GIA has supported these past 74 years. GIA’s implementation of diamond grading standards, supported by a grading laboratory and educational system, has done more for diamond quality and pricing transparency, fair trade and consumer confidence than anything else in the history of the diamond industry. GIA’s education and research protects the industry from fraud as it raises the technical, professional, ethical and moral standards of our community. The GIA I respect, “calls it like it sees it” no matter where the chips fall. It is more interested in “doing the right thing” than protecting its money or saving its reputation. I believe in the GIA, not because of the buildings, the laboratories or our business with them, but because of the shared values that it supports. This belief in the GIA and our relationship with the GIA is not unconditional. Should the GIA move away from its core values, then we will no longer support or represent them.

So let me make it clear. We at Rapaport define integrity as an unconditional commitment to core values. Our core values include honesty, full-disclosure transparency, fair trade and meeting commitments. Our Group’s commitment to integrity means that we are willing to lose money, reputation and everything or anything else in support of our core values.

Therefore, dear reader, we are biased in this report — because we admire the GIA for its history and values. We are, however, not going to pull any punches and, in true GIA tradition, we will “call it like we see it,” no matter what the consequences — for Rapaport, the GIA or the industry.

Background
Max Pincione’s April 2005 lawsuit against Vivid Collection LLC, Moty Spector, Ali Khazeneh and the GIA included a charge that Vivid made payments to the GIA to “upgrade” the quality of diamonds submitted for grading. Pincione presented Exhibit “F,” a handwritten page showing details of alleged payments and upgrades.  Exhibit F, which appears to be from the year 2000, contains numerous initials and includes the text “To Alina $3,500 For August in Full,” “To Alina for September $3,500 paid.” Although the handwritten page allegedly provided to Pincione by an “informant” could have been written by anybody for any reason and may never hold up in court, in my view it looks authentic and like a listing of upgrades and payments for them. Upon information and belief shortly after the lawsuit was delivered to GIA, a GIA employee with a name very similar to “Alina” was suspended. As far as we can tell it looks like “Alina” was llegedly bribed to upgrade the quality of diamonds on GIA grading reports. Obviously, further investigation and disclosure are necessary. Rapaport News became aware of the lawsuit in August and published a brief article about it. In September, we began hearing false rumors of an FBI bribery investigation obviously driven by GIA’s own internal investigation. Finally, on October 18, the first day of the Succot holiday, the GIA issued a press release announcing the completion of their internal investigation and organizational changes that included replacing GIA laboratory head Tom Yonelunas with Tom Moses and firing four employees.

Following the release of the GIA press release and the conclusion of Succot, I immediately traveled to New York and spoke with a number of people before writing this article.

While I do not have access to GIA’s investigative report, I was able to develop a limited opinion of what is going on. As far as we can tell, the current situation is as follows: No one knows or can guarantee exactly how many, the type, or which lab grading reports may have been affected by the bribers.

What we do know is that after a very thorough independent — and I believe honest — internal GIA investigation, only a handful of bribers have surfaced and the number of stones known to be affected are in the tens, possibly hundreds, and certainly not thousands. The bribing activity appears to be limited to large stones graded in the New York lab and submitted by just a few firms. GIA is expected to provide all details of its investigation to law enforcement agencies.

Furthermore to the best of our knowledge and based on our own investigation, no diamonds submitted through Rapaport Group offices have been tainted in any way or were subject to any improper grading. Our policy is that we submit all stones with unique Rapaport numbers and the identity of the actual owner of the diamonds is never disclosed to any laboratory employees. While a highly confidential list identifying our numbers and the owners is provided to GIA management on an occasional basis, to the best of our knowledge, this list was kept entirely confidential and not shared with any lab employees or supervisors who would have an opportunity to change any grades.

Buyers are encouraged to carefully examine all large, expensive diamonds from all sources and to insist on a verification procedure if they doubt the grading standard. While grading reports are, and will continue to be, an excellent basis for trading diamonds they do not replace the need for independent examination and the need to know and trust your supplier.

Full Disclosure
When an important organization like the GIA makes a mistake, the best and most honest way out of the problem is for the management of the company to take responsibility and make full disclosure of the mistake. Management should also apologize for the damages caused and carefully explain what they are doing to make sure that the mistake never happens again. Full disclosure is not only good public relations in that it enables the reestablishment of trust in the company and its products, it is also good therapy for management. From then on management realizes that they will have to operate in a fishbowl with their actions and reactions scrutinized by their board, the public and even their competitors.

While GIA’s press release provides important information, it is highly disappointing and problematic. It also raises a number of complex ethical issues.

First of all, GIA does not provide full disclosure of what happened — they do not straightforwardly admit that any employees have been caught taking bribes.  They do not name the people taking or giving bribes. While the diamond trade is being concerned, confused and misled about the number and types of grading reports illegally upgraded, the GIA does not disclose the extent of damage even though it seems likely that only a very limited number of large diamonds graded in the New York lab are known to have been upgraded.

The GIA’s refusal to name the bribers is highly problematic. By firing graders and acknowledging the existence of clients who are “implicated” in “improper attempts to influence the outcome of grading reports,” the GIA is telling us that members of our trade have bribed the GIA, but they are not telling us who they are.

The GIA is inadvertently casting aspersions on their honest clients, implying that some unknown number of clients are bad apples, but not informing us of how many, who they are, or the types of diamonds that they deal in.

Why isn’t the GIA disclosing the names of the bribers? Could it be that when there is a conflict of interest between the financial interest of the GIA and the integrity of the diamond industry, the GIA protects itself at the expense of our industry? Is this how the GIA fulfills its mission statement of “ensuring the public trust in gems and jewelry by upholding the highest standards of integrity?” When a conflict of interest arrives, is it the mission of the GIA board to protect the interests of the GIA or the public?

GIA undoubtedly has “good” reasons not to practice full disclosure. The threat of damages from the Pincione lawsuit obviously encourages GIA’s lawyers to limit public disclosure. On the other hand, the GIA is asking for the diamond industry’s trust, and one wonders, what else would the GIA hold back? If bribes were taking place in Carlsbad (California) — would this be disclosed by the GIA or would management, after taking legal advice, take care of it quietly? Can or should the diamond trade trust the GIA? But what about the GIA board? If the public interest is being damaged and the board knows it — don’t they have an obligation to inform the trade and public? Is this to be done through leaks to people that have agendas? Is GIA’s board to be exempted from the new zero tolerance policy? Who makes decisions when there is a conflict of interest between the public, trade and the GIA? Who has the right to keep secret activities that violate the public trust and/or information that enables the trade to defend itself and consumers against fraud? Are the ethics and morals of the GIA to be governed by well-intentioned lawyers seeking to protect the GIA?

Complicated Situations
Now that we have provided perspective, communicated our strong words and made our impassioned pleas, let’s take a less emotional, more rational and realistic look at the situation. Other than a possible leaker or two, the GIA board consists of excellent people who really care about the GIA and its public trust mission. They and the GIA are currently in a tough situation. In some instances, whatever they choose is bad and it is extremely difficult to discern the lesser of the two evils.  Frankly, this is not a good time for us to attack the board and insist on idealistic, simplistic solutions to extremely complex problems and situations. Full disclosure is ideal and fair, but it is not a panacea. Applying a full-disclosure policy that is highly damaging to the GIA when appropriate alternative action can prevent abuse may be the wrong course of action. We must recognize that the GIA board has the right and obligation to make decisions that impact not only the GIA, but the industry and the public. We must give the GIA board space to operate and time to do what is right. Heaven knows, they have a hard enough mission as it is.

Having said the above, we emphasize that it is important for the board to carefully consider the full ramification of their decisions on all stakeholders, particularly the diamond trade. As a public trust entity, the GIA’s responsibility must be inclusive and sensitive. While a knee-jerk, full-disclosure policy may not be appropriate in the current situation, alternative solutions for the problems generated by partial disclosure must be provided. Ultimately, the GIA must recognize that, with rare exception, what is good for the trade is good for the GIA and what is not good for the trade is not good for the GIA.

Let us now consider the issue of identifying the bribers from a different perspective — a purely GIA self-interest perspective. By now, it is clear that bribers pose a threat to the integrity of the GIA grading report. If bribers are allowed to go on bribing, they will destroy the credibility of the GIA and eventually force the closing of the GIA laboratory and the GIA activities supported by profits from the laboratory.

If a grader specializing in large expensive diamonds gets paid $X per year, he can be making decisions over the year that directly impact the value of say, one thousand times X. Therefore, dishonest diamond dealers will always have an incentive to bribe graders/supervisors and graders — unless they are angels in heaven — are going to find it hard to resist the persistent and innovative offers of bribers. The more employees in a lab and the closer they are to the dealer community, the more likely it is that the lab will have graders or supervisors taking bribes.

Fortunately, there is a natural way to stop the bribing — deterrence through disclosure. Consider the game theory. If a briber does not get caught, he wins. If he gets caught and the GIA — in order to protect its assets and/or reputation — settles the case in a way that the briber ends up being penalized less then he has gained, the briber wins again and will continue bribing because he is in a win-win situation. By “protecting” its reputation, the GIA is attracting those that seek to destroy its reputation. The greater the GIA’s reputation and the more “protected” it is by the GIA, the greater incentive for bribers to attack.

On the other hand, if the GIA — through full disclosure, civil lawsuits, publishing the numbers of suspected reports or any other way — discloses or causes to be disclosed the identity of the bribers, a different game develops. The briber suffers huge loss to reputation. The long-term monetary loss from such reputational damage far outweighs the short-term benefit of bribing. Bribing goes from being a rational, though illegal, activity to an economically irrational activity. The lesson is simple. If we publicly ruin someone’s reputation, the potential monetary loss is so great that it just does not pay to bribe, i.e., deterrence. If we don’t ruin the reputations of bribers, they will continue to operate and eventually beat the GIA into the ground.

Our goal is not to provide the GIA with specific solutions to all problems, but rather to encourage and plead with GIA’s board, management and lawyers to come up with their own innovative solutions. We recognize that the GIA is in a difficult situation. However, sometimes what we think is a solution creates an ever bigger problem. Sometimes our biggest nightmare is when our dreams come true. The bottom line is that GIA’s board must consider and take responsibility for the unintended consequences of their actions. Actions taken with the best of intentions are often the most dangerous.

The trade must also recognize that the GIA is going through a very difficult transitional period. Optimal long-term solutions to the problems at hand will take time to implement. Quick-fix solutions, although apparent, may be unsustainable and nonoptimal. We in the trade need to make our points, turn down the hysteria, and work together with the GIA to help solve the problems at hand. We must recognize that the GIA will have to take a series of steps as it develops new processes for improving the integrity of its grading reports. The trade should expect and support a process of change that will ensure and enhance the credibility and integrity of GIA’s grading reports.

Rest Assured?
The only amusing statement in the press release is that when dealing with the bribers, the GIA tells us “rest assured, they will be dealt with swiftly and decisively.” Now I mean no disrespect to GIA, but having grown up in New York, I imagine that these bribers are pretty tough guys. “Swiftly and decisively”? – we are, of course, waiting and wondering. What is the GIA going to do, have their lawyers throw paper airplanes at the bad guys?  Seriously speaking, I doubt that the GIA, who is unable to name the bribers, is capable of “dealing” with them. While we can expect the GIA to forward their investigative report to the appropriate legal authorities, such authorities rarely act swiftly or decisively. Perhaps the GIA could initiate a civil lawsuit that would enable the disclosure of the bribers names and then the diamond dealers could “deal” with them. The real issue here is why isn’t the diamond trade taking responsibility for the rotten apples in our midst? The GIA is the well from which all of us drink.  The New York laboratory provides the 47th Street community with unique opportunities that employ hundreds of people. The GIA enables the entire diamond world to legitimize premium prices for the best diamonds. Bad people are poisoning our well. Clearly, our trade must take immediate proactive protective measures.

The press release issued by the Diamond Manufacturers and Importers Association of America (DMIA) on October 25, 2005, is a good step forward.

We believe that the World Federation of Diamond Bourses (WFDB) and International Diamond and Manufacturers Association (IDMA) should develop a joint resolution at the upcoming Mumbai conference that provides the following:

• Make it a violation for any member to bribe any laboratory employee.
• Make it a violation for any member to knowingly trade in any diamond whose diamond grading report has been improperly upgraded due to bribery.
• Require a five-year suspension for any member found to have bribed any laboratory employee or knowingly dealt in any improperly upgraded diamond.
• Require all organizations to post, and/or, give notice to all members, the individual and company names of all those found to have bribed any employee of any diamond laboratory.

Such findings should be based on the conclusion of due legal process by the WFDB, IDMA members or national court systems.

Furthermore, we encourage the WFDB and the IDMA to establish a joint investigative committee that will collect information from members about any irregularities at any recognized laboratories. The committee should also consider publishing advisory guidelines as to the measures that laboratories may take to ensure the integrity of their grading reports.

Conclusion
The Rapaport Group is deeply concerned about “improper attempts to influence the outcome of GIA grading reports.” It is our intention to use our available resources to fully investigate all aspects of diamond grading reports and bribery attempts. Dear friends, what is going on now is not acceptable. Our information indicates that Pincione is planning a more aggressive legal approach and it is only a matter of time before the current controversy is picked up by the general media and the credibility of our industry is put to severe test.

The fundamental foundation of the diamond industry rests on our integrity as a community committed to honesty. This foundation is now under attack. Hopefully, the GIA problem will be limited, but these events and this story must serve as a clear warning that we are in danger of losing the integrity of our industry and our products. Make no mistake about it, if we ignore this problem, it will not go away. Now is the time for all of us who care about our industry to work together and find ways to ensure the security of our grading systems and the integrity of our diamonds.

The Tanzanite Foundation
An Interview with Sarah Cort
by Robert Genis

Although we do not recommend Tanzanite as a collector gemstone due to the fact it is heated, we admire the marketing prowess TanzaniteOne, the biggest player in the tanzanite market.  Their marketing arm is the Tanzanite Foundation.  The marketing strategy is politically correct branding and jewelers should consider this product. We spoke to Sarah Cort of Global Operations, regarding their plans.

Gemstone Forecaster: What do you mean by Ethical Mining?

Sarah Cort:  The Tanzanite Foundation is founded on The Tucson Tanzanite Protocols, which outline best practice principles for trading and mining of tanzanite. These protocols detail and promote that tanzanite must follow a legitimate and transparent route to market with a traceable chain of warranties. The Tucson Tanzanite Protocols were drawn up in 2002 as in response to an alleged link between tanzanite and terrorism. Following this allegation, the US State department conducted a full investigation into the tanzanite industry, repudiated these allegations and gave tanzanite and its industry a “clean bill of health”.

The Tanzanite Foundation promotes ethical mining which means that we endorse that correct safety precautions are taken when mining, that best employment practices are adhered to and that due consideration is given to the environment when mining. Therefore, exports follow a legitimate route and that the correct taxes and duties are paid on all exports to the Tanzanian government. We aim to protect tanzanite’s integrity and preserve its reputation.

GF:   I understand benefitting the  local community is a prime goal of the Foundation. What programs do you fund specifically? What percentage of sales or amounts do you remit to the people of Tanzania?

SC:  Yes, it is important to us that we are able to contribute on an ongoing basis to these local communities in a meaningful and sustainable way. The Tanzanite Foundation has worked with these communities to build roads, partnered with these communities to build and maintain a school which educates 432 pupils and we are currently building a second school (the roof remains to be completed!). We supply fresh water to the Maasai and their cattle as well as electricity; we also maintain a medi-clinic and are involved in various beneficiation and environmental rehabilitation programs. Our tailings program involves the donation of tanzanite tailings from the mines to these communities that are then able to extract the remaining tanzanite content, sell what stones are recovered and use the remaining tailings to build bricks.  The result is a win-win arrangement for the mining companies and the communities. We have invested over US$500,000 into these projects.

GF:   What is the Mark of Rarity? Could you discuss the special viewer and the given special number for stones larger than 5 carats?

SC:  The Mark of Rarity is the icon of the Tanzanite Foundation and is synonymous with consumer confidence and an ethical route to market. Only Tanzanite Foundation members are licensed to use the Mark of Rarity, which can be seen at a retail level on jewelry tags, stamped onto jewelry and inscribed on the table of tanzanite. Tanzanite over 5 carats will be inscribed with a special number which a consumer can then register on our website and can view, along with the Mark of Rarity, on a special viewer. This assists with the identification of a tanzanite and enables us to record and track the provenance and history of these gems.

GF:   We understand you are going to license your grading system to independent labs for the grading of tanzanite. Can you discuss your progress in this area?

SC:  The Tanzanite Foundation has developed a grading scale specifically for tanzanite. This scale is described with a tanzanite master set and considers the cut, clarity and color of tanzanite. It is our intention to make this the universal system for grading tanzanite so as to ensure and promote global quality and price consistency as well as comparability and trade and consumer confidence in tanzanite.   Importantly, the grading system will assist in ensuring that the prices across the grades and sizes more accurately reflect the relative rarities of tanzanite production.  We are working closely with independent and reputable laboratories to apply this system and hope to announce their names in the near future. Following our announcement we will aggressively communicate this system to both trade and consumers and highlight the importance of receiving a certificate and grade according to this system, when you purchase a tanzanite loose or set.

GF:   According to your grading scale, a violet blue exceptional and a blue violet exceptional vivid are equal. In the US market, tanzanite has always been considered the bluer the better. How do you respond to this?

SC:  The grading scale differentiates from predominantly blue (vB) and predominantly violet (bV) tanzanite and then considers the saturation of color in either category. Certainly when cutting a predominantly blue tanzanite, more carat weight is lost in recovery and so predominantly blue tanzanite is harder to come by. However, purchasers of tanzanite do rely on their personal preference of the shades and hues which they prefer.

Notable Quotes

“ Investors are taking a shine to gems.  The jewelry market is seeing new highs, with record prices being set for diamonds of all colors and exotic gemstones.  Fueling the demand is a desire for tangible assets amid inflation fears and a lackluster stock market, experts say.”
Wall Street Journal
November 26-27, 2005

“Collectibles such as art, gold coins, gemstones and baseball cards, are part of a hard-asset class that is popular with investors seeking a safe haven from finicky markets. “
Associated Press
November 27, 2005

Auction Reports

Christie’s  New York
On October 19, 2005, the sale garnered over $35 million and 86.53 percent was sold by lot. The premier stone sold  was a 25.02 carat fancy pink, internally flawless pear-shaped diamond sold for $6,008,000, or $240,000 per carat.   The stone was bought by Dubai diamond dealer Amer Radwan, who named the stone The Rose of Dubai. He stayed up to until 3:00 a.m. so he could bid on the diamond.  As the bidding began, everyone in the full room turned their undivided attention to the phone banks, watching and listening intently. At one point, seven people were bidding for the gem. As the price increased, the bidding came down to three major international dealers, all on the phone, upping the ante to the final price.

Also a 4.24 carat fancy vivid blue, internally flawless oval diamond, set in a ring by Harry Winston sold to an anonymous buyer for $1,808,000. Finally, a pair of antique emerald bangles that sold for $1,136,000 to a dealer in England. 

Christie’s Geneva
On November 16, Christie’s sold 283 of the 366 lots offered, a success rate of 89.8 percent by value.  The total amount of the sales were $39 million. Ten lots sold for more than $1 million; of those, four sold for more than $2 million.  The top ten lots together brought in  $21.5 million. The prime piece sold was a dazzling jeweled crown which sold for over $6.1 million -a world auction record for a crown.  Some speculated the piece might be broken up for the gems it contains. The crown  includes white and yellow diamonds ranging up to a 45.27 carat stone; rubies from 4.01 to 8.10 carats and exquisite drop-shaped natural pearls.

Famous jeweler Laurence Graff paid over $2 million for a rectangular-shaped fancy blue VS2, 5.46 carat diamond. A Middle Eastern buyer bought an Asscher-cut, fancy intense yellow, VS1 diamond weighing 60.18 carats, for over $1.6 million.

Sotheby’s Geneva
On November 17, Sotheby’s Geneva sold slightly under $27 million.  Sotheby’s sold 341 of the 440 lots offered, with 87 percent sold by value. The main stone list was a   radiant cut, 10.31 carat fancy vivid pink, SI1  diamond. The stone went to a private buyer for almost $3.9 million.

In The News
The Ultimate Jewel of All Jewels
By Vivienne Becker
International Herald Tribune
December 5, 2005

Connoisseurship rules. In the rarefied world of fine jewelry, the all-absorbing quest for individuality, that rampant lust for the ultimate, one-of-a-kind exclusivity, is driving discerning buyers toward the rarest and most ravishing of nature's miracles: colored diamonds.

Regarded until five to 10 years ago as a scientific curiosity, the colored diamond, with its fire and light, its soft, powdery palette of cherry blossom pinks, baby blue, mist gray, gooseberry green, cognac, ochre and so many more, has become the poetic focal point of high jewelry collections around the world. In today's escalating climate of "super luxe," the princely colored diamond, beyond precious, beyond fashion, is the ultimate possession.

Melvyn Kirtley, Tiffany's head gemologist, has been assembling a "critical mass" of colored diamonds for Tiffany over the past few years, building, he says, on the company's historic ownership of the 128.54 carat canary yellow Tiffany diamond, mined in South Africa in 1877. He explains the enduring appeal: "Colored diamonds are so immensely rare, so remarkable, and although people are more aware of them today, they are still a bit of a secret, something intensely personal. You have to discover them, and, when you do, they open up another world."

It is this element of personal, secret and understated luxury that makes the colored diamond the perfect gem of the moment. Usually small and subtle, colored diamonds possess a sophisticated, low-key glamour that only the wearer, or another elite connoisseur, can understand.

To put this into perspective, last month at the major Geneva jewelry auctions, Sotheby's top lot was a rare fancy, vivid pink diamond ring of 10.31 carats (fancy and vivid being industry classifications), ample but not monumental by white diamond standards, which sold for $3,898,602 to a private collector. Or think of the prized possession in Tiffany's collection, an emerald cut red diamond, the rarest color of all, of only 1.59 carats, with a price tag of $2.6 million.

If red is the rarest of natural colored diamonds, then green comes next, followed by blue, pink and yellow and a spectrum of delectable shades, from rich liqueur browns to citrus and chartreuse and smoke gray. The color, produced by various impurities in the diamonds, is unpredictable: nature has the last word.

The most celebrated of modern-day red diamonds is the Moussaieff Red, a uniquely pure red, large at 5.11 carats (price on application only), and pride and joy of Alisa Moussaieff, the London and Geneva-based jeweler, who scoops the most extraordinary diamonds for her elite clients, many of them based in the Middle East.  "Whatever is rare is getting rarer," she confirms. "With colored diamonds, it's not only the paper certificate that matters, but the eye."

Franois Curiel, Christie's International head of jewelry, agrees that Middle Eastern buyers are the biggest consumers of colored diamonds in today's market, followed by Asian collectors. "The market for colored diamonds is as strong as it has ever been," he says. "In our Geneva jewelry sale in November, a fancy intense blue diamond, of 3.71 carats, that had been unsold, at $850,000 in New York in 2002, sold for $1.3 million. Good colored diamonds are so scarce, that they fetch 10 times the price of a colorless D flawless stone. Out of every 100 colored diamonds found, there is only one of truly fine color. Plus there is a lot of money around looking for good jewelry."

Alex Rhodes, Sotheby's jewelry expert, welcomes the increased competition for colored diamonds among private buyers. "Private collectors at that level are usually connoisseurs of art with sophisticated, highly educated tastes. They buy a jewel as a work of art. Choosing a colored diamond goes way beyond the usual classifications, it is about the intensity and subtlety of color, and the way it plays with the fire and brilliance of the stone. It demands a special understanding." Clearly this is where the element of connoisseurship comes in, but colored diamonds, each intensely personal, also provoke a powerful emotional response. "There is a passion involved here," confirms Kirtley, "a strong emotional element, and the more collectors understand, the more passionate they become. With a colorless diamond, the criteria are easy to understand, but the subtle nuances of color, and then the emotional reaction are not quantifiable."

One man who understands the emotional pull and the language of diamonds is Laurence Graff, who handles approximately 60 percent of the world's output of yellow diamonds, not to mention some of the world's most important blues and pinks. He says his signature yellow diamonds come mainly from South Africa, while many blues are sourced in Angola and pink diamonds come from Australia and Brazil.

Prices reflect this scarcity. Graff recently sold the Golden Star, a fancy vivid yellow cushion cut diamond of more than 101 carats, in a deal that netted more than $12 million. Nir Livnat, chief executive of Steinmetz, one of the world's most prominent diamantaires, has brought some of the most mesmerizing colored diamonds to market in recent years, including the monumental Steinmetz pink, and a Midnight Blue collection. "Ten years ago, we had traditional buyers, Middle Eastern royalty, very wealthy Europeans. Today, the appeal has broadened considerably to include the Far East and countries like India and Russia that have a strong diamond tradition and understand the finesse of the colored diamond," he says.

The cutting of a colored diamond is crucial, so crucial that Livnat supervises the process. "It is not only about luster, but about color saturation and how the light travels differently through the color. Each colored diamond is a challenge. Each stone has to maintain its own personality," he says.

Needless to say, rare colored diamonds take center stage in the inaugural collection of Sotheby's Diamonds, a salon-style retail venture in which Steinmetz partners Sotheby's. The collection is being launched in New York and Hong Kong this month, aimed at the world's top jewelry buyers. Marc Auclert, Sotheby's head of jewelry for Europe and Asia, who is overseeing the collection, drools over the 11 carat chewing-gum pink diamond, the 5 carat fancy deep blue pear-shape, and the 1.70 carat emerald-cut red. Auclert comments, "There are probably 20 people in the world, 50 at the most, capable of buying at this level." At more affordable levels, the desire for colored diamonds is being disseminated by jewelers like David Morris and Hirsh of London, and Chatila, who is exhibiting his range of museum-quality diamonds, for the second year, at this week's Dubai Watch and Jewelry Fair. Jeremy Morris, designer at David Morris, London, is composing one-of-a kind sautoirs of vibrant multi-colored diamonds. The first sautoir was sold to a Middle Eastern princess, to be worn on her wedding day.

Even contemporary minimalists like London's Cox & Power are playing with diamond colors, hanging beads of gray or brown diamonds, with a serene yellow or pink diamond pendant. A new design-driven, fashion-forward element is creeping in. De Beers' new Talisman collection features rough colored diamonds in warm, earthy tones set to look as if they are oozing, organically, out of soft, textured gold, or clustered into random pools of shimmering light and shade. These are aimed, explains the De Beers CEO, Guy Leymarie, at showing the natural diversity of diamonds. "This is a strong trend, which shows that not only are diamonds magical stones, but they are also a part of fashion."