Hard Currency

(Reprinted from ES Magazine, London, UK, dated June 5, 2009) -- People buy diamonds to show love or to show off, but the most valuable stones are traded in secret among the world’s shadowy rich. Portable, indestructible and beautiful, the biggest diamonds are a billionaire’s best friend.

The most revealing remark about diamonds in the last 25 years descends to us from Saddam Hussein. In 1990 Saddam’s army arrived out of the blue on the borders of Kuwait - Kuwait, the state no bigger than a rug but rich in oil and whose Emir, by one of Saddam’s vivid metaphors, is richer than King Croesus in 550 BC. An alert guard raised his fieldglasses, seized his telephone and rang the Emir by his swimming pool. “Hop it!” was his message. Within 20 minutes the Emir had run for his helicopter with 80 percent of his wealth in a bag on his back. It was, needless to say, in diamonds, very large diamonds, straight out of the safe.

Sheikh Jaber al-Ahmad al-Jaber al-Sabah was the father of 50 children and owner of a royal fortune lying, by the fluctuations of the oil price, between US $500 million and $1 billion.

‘Ah yes,’ remembers David Bennett, head of jewellery at Sotheby’s, who sold three D internally flawless diamonds of over 100 carats in the Nineties to Middle East buyers. ‘How else can you put $12 million in your pocket?’

The Emir is the world’s painful answer to the illusion that big and brilliant diamonds are a romantic story to do with the decoration of ladies - with Elizabeth Taylor, the Queen of Brunei and the like. The truth is that although they are sometimes photographed on the necks of Hollywood's beautiful, this is not why they are mined and why they exist.

What are diamonds for? ‘How shall I say it?’ says Bennett’s opposite number at Christie’s, François Curiel, elegantly. ‘Diamonds are an answer to a need in the Middle East for portable wealth, to an uncertainty in their world, to a need for a currency that is truly international, a need for something that is easily carried and easily put away.’ It’s not just in the Middle East and it’s not just now. Diamonds answer an urgent need worldwide for a $12 million bank-note that is smaller than an ink blot, which slips, lighter than a Kleenex, into a pouch in your wallet. The need comes nowhere more intensely than in Saudi Arabia where princes gaze through the window at dawn in terror that the Islamic hordes are pouring down the mountainside. But, says Lior Levin, London manager of one of the world’s leading diamond companies, Steinmetz, ‘There have always been people who need to make that kind of escape - Tsars of Russia, Arab princes...’ The mind runs to fleeing Nazis, Chinese Communists, Balkan dictators, to Mugabes, Milosevics, Saddams, to rich men on the run for all sorts of reasons. Diamonds, in a phrase, have become the world’s most important invisible currency.

Portable wealth is not the only need for which great diamonds are created, of course. But did you really believe what Marilyn Monroe said: That ‘Diamonds are a Girl’s Best Friend’?

At prices of over $1 million, diamonds have little to do with the decoration of ladies. Feminine beauty is one of the last thoughts of the men who mine deeply at a deep expense into the earth in South Africa, India, Sumatra, Borneo, Russia, Australia, Canada and Brazil in frantic search for treasure. Don’t let the photographs of jewelled beauties deceive you.

Supreme diamonds, put shortly, are for men. Jeweller Laurence Graff of Mayfair, tries not too hard to disagree with this. ‘People buy diamonds for the long term, to safeguard their finances, to store their wealth and to protect against inflation.’ he says generally. ‘And yes, they can take them to any country in the world. That’s the motivation. But,’ he adds gallantly, ‘you would be wrong to say that very great stones are never worn. Owners, I assure you, want to see them being worn.’

Laurence, relaxing in the Mayfair mellowness of being the world number one jewellery dealer by sales - ‘by a long distance’, according to Curiel of Christie’s, ‘far ahead of Cartier, Boucheron’ and the Paris names - is, in my judgement, in danger of becoming a huge romantic. Is this really true? ‘I have sold 100 ct. D flawless stones to men who place them on their lady’s neck,’ he responds solemnly. I believe you, I reply, but I suspect Graff is telling me this only because ti is so rare; and aren’t there six bodyguards standing around when it happens?

Who does buy diamonds at the top of the market? The first answer is one to be proud of: the world’s two top diamond dealers are Londoners - Graff and Alisa Moussaieff, whose Bond Street family business dates back to Uzbekistan in the 1850’s. De Beers of Charterhouse Street, Holborn, is, of course, the world number one buyer of roughs. The diamonds are cut in Antwerp and in India, but London is where the business starts and ends. The second answer is disappointing: the people who pay most for diamonds are people you’ve never heard of.

I assert this from a happy accident at Hotel Le Richemond in Geneva when I arrived an hour early for a Sotheby’s Magnificent Jewels sale to find the room empty but a name on every seat. A saint could not have refrained from reading them. I scanned 150 seats and fainted from boredom. Glamour failure was complete. Where were Elizabeth Hurley and Hugh Grant? The world’s diamond-rich - these were mostly private names, not dealers - move deep below the parapet under names that mean nothing. But David Bennett of Sotheby’s assists: ‘The three big buying communities for diamonds are the Middle East, the US and the Far East.’ Americans, adds Curiel, are 50 per cent of the takers in most sales. Russians are big buyers and even bigger underbidders.

The Nineties and the 21st century have seen more astonishing diamonds appear in public than in any decade since the reign of Edward VII, when the Cullinan Mine poured out its wealth in South Africa and randlords bestrode the land. This fact demands explanation.

The decade began with De Beers releasing a 599ct. rough that had surfaced in its Premier Mine in 1986; it was turned after five years of struggle into the 273.85ct. Centenary Diamond by the cutter Gabi Tolkowsky and is said to be largest faceted D flawless diamond in the world.

Then, at auction, no fewer than three diamonds of magic weight and purity - over 100ct. - came to sale in the Nineties while ‘five or six more’ were created and passed through the trade in London, New York and Antwerp (all expert sources I consulted agree on this count). The first at auction emerged while Saddam was fighting the Allies on the sands of Kuwait: a 101.84ct. D colour, internally flawless (the second purity after ‘flawless’) pear-shaped, which fetched an unheard-of £8 million at Sotheby’s Geneva on 14 November 1990. It was bought by the Lebanese dealer Robert Mouawad, who promptly named it the Mouawad Splendour and sold it on all accounts into Saudi Arabia. Where had it come from? Nobody said, but it was undoubtedly a ‘new’ stone. In 1993 Sotheby’s came up with another rectangular cut of 100.36ct. again the supreme D colour and internally flawless, which sold in Geneva for £8 million as the Star of Happiness for another Middle Eastern buyer.

Both of these were eclipsed in 1995 when a pear-shaped diamond made the magic 100ct. by a whisker - 100.10ct., which means that if a single facet gets damaged by a knock, it sinks below 100 - but sold, D internally flawless in Geneva as before, for a world record diamond price of £10.5 million. It transmuted into the Star of the Season in the blue sky of its mysterious owner and into an insurance policy against all of life’s miseries.

The salesroom battles were all between Sheikh Ahmed Hassan Fitaihi of Jeddah, owner of the Fitaihi Center (the Harrods of Saudi Arabia), Graff, Mouawad and Sam Abrams of New York, but whoever won, the stones finished up in Saudi Arabia. The auction world had seen nothing like this diamond battlefield in history; but more stirring things yet were happening in private.
Steinmetz, who cut the 100.10ct. at Sotheby’s, in turn unveiled on its own account a 200.07ct. heart shaped D flawless called La Luna and the 203.04ct. pear-shaped D flawless De Beers Millennium Star. On the coloured front, where values have climbed yet higher, it produced an astonishing 59.60ct. internally flawless fancy vivid pink - who had seen anything like this before? - and a 27.64ct. vivid blue.

How, I ask Lior Levin of Steinmetz, does all this happen? Are diamonds like shipwrecked treasure on the sea bed - found by pure accident and can just turn up like that, at any time? I ask not least because no more 100ct. white diamonds have sold in public since the 1995 pear-shaped; the nearest is the 84.37ct Chloe diamond in November 2007 named after the daughter of the Guess Jeans proprietor, who paid over £10 million for it. Or is it that large diamonds miraculously appear for sale when the market wants them?

Levin smiles graciously at my naivety. Quite clearly there is a very large business in hugely expensive 100ct. D flawless stones and important coloured diamonds, in private, far away from public gaze. ‘Look at the build-up of wealth around the world in the last 20 years. India has moved from socialism to capitalism and Russia from dark cold Communism to semi-democracy. China has opened to the world and Hong Kong has gone from strength to strength. The West has been immensely rich. Unlooked-for wealth has come into private hands.’ What it means is that when the great cutters stare at large roughs, they size the up according to the buyers who are out there. So you know at any time the level of of demand for 100ct. D flawless stones and where to find it? I ask. ‘Of course,’ he replies. A large rough breaks into a mass of stones for an impoverished market, into something supreme for a rich one.

It has been like this, of course, for more than a century. When the East India Company in the 1840s found an enormous rough at Golconda in Andhra Pradesh, it knew what it wanted: it commanded that a second diamond, the 186ct. Koh-i-Noor, the Mountain of Light, should be presented in 1850 to Queen Victoria and unveiled at the Great Exhibition in Crystal Palace in 1851. The reverential public stared not just at the largest but also at the oldest stone in the world; the Koh-i-Noor had been worn in battle by Karna, King of Anga, who lived and died around 3,000B.C.

The same choice of how to handle an enormous rough arose with a 3,106ct. monster that emerged from the mine of Sir Thomas Cullinan in the Transvaal in 1905 and whose children now sleep in the Tower of London alongside the Koh-i-Noor. Two immense pear-shaped stones were taken from it, the smaller, of 317.4ct., was set into the front of the Imperial State Crown and the larger, the 530.2ct. Great Star of Africa, was set into the head of the Royal Sceptre. The Cullinan stone, which began life as a tiny gleam of light at sunset spotted on the wall of the mine by Captain Frederick Wells and dug out with a penknife, also yielded a dozen smaller diamonds under the blades of famed cutter IJ Asscher of Amsterdam. Roughs are there to do what the market commands them.

Nonetheless, I ask if we are not seeing an extraordinary late-in-the-day success in the Nineties and 21st century in extracting great stones. ‘No,’ says Lior Levin, ‘there have always been great roughs available,’ throughout the 20th century and before.
So was there a lower demand for big stones in the less prosperous Eighties, the Seventies, the Sixties and back through the war years to the Twenties? Secretly, there are, it seems, all sorts of 100ct. diamonds and important coloured stones in existence that have never come to public light, may never do so and are traded by heads of state and the super-rich in deepest privacy.

Laurence Graff assures me it has never been harder to bring supreme diamonds to the surface. Diamonds, which are pure carbon, the hardest and most brilliant of all precious stones, are found either colourless - ‘white’ - or in shades of red, blue, pink, yellow and green and now lie deep underground. They raise the same problem as the world’s coal: one must dig ever deeper to find them, turn over ever more earth.

Graff owns a mine in Lesotho. ‘I was there two weeks ago, in windproof clothes and boots, shovelling earth as [my staff] do, trucks and trucks and trucks of rock. If people could see how difficult it is to mine diamonds, how much rock must be moved to find them....you find less than one carat of diamonds in one truck.’ A 1ct. diamond stands on half of your little fingernail. ‘Then, when you find a diamond, you have to polish and cut it, at which point you find things you did not see before - no wonder these become toys too valuable to play with.’ Toys too valuable to play with is as good a definition of diamonds as I can come up with.

The answer, then, to the big mystery - What are diamonds for? - is that they are there to serve as one of the world’s most reliable reserve currencies; as, in other parts of the market, great Picassos do. ‘I have yet to meet anyone buying a diamond who did not think that it would be a good investment to put away for the future,’ declares François Curiel. Laurence Graff agrees: Those Saudi buyers of the Nineties, they were very shrewd; they’ve made three times their investment.’

Are diamonds as good as this, financially? Last month in Geneva, Sotheby’s got £5.9 million for a fancy vivi blue, internally flawless cushion-shaped diamond of just 7.03ct. This awesome sum was bid on high estimate by the Warhol-owning Hong Kong land and property developer Joseph Lau, who flatteringly named it the Star of Josephine, apparently after his youngest daughter. His price is actually less startling than the record price per carat he set for any gemstone sold at auction: £900,000. This vivid blue surfaced quite recently, a chance find at the Cullinan Mine. Blue is, next to red, the rarest of all diamond colours. Two pieces of information are sent us here: one is that coloured diamonds have far overtaken white diamonds in value per carat; the second is that, in 2009, the Middle East does not always win.

Coloured diamonds are a market invented by Laurence Graff and the Queen of Brunei in the Eighties. Before that, rubies from the Mogok region of Burma, 90 miles northeast of Mandalay, outperformed them. Probably the stone with the highest real carat value in the world is the fancy purplish-red diamond, the Hancock Red, for whic hteh Sultan of Brunei paid £544,525 in 1987. It was 0.95ct. in weight, tinier than a pixel and it worked out at £572,985 per carat or around £1.5 million now. Coloured diamonds are for billionaires and handsomely repay those who gamble in them.

(Reprinted from ES Magazine, London, UK, dated 5 June, 2009)