GIA’s Problems, Continued

Since my last column, a great shroud of silence has fallen around the alleged bribery case at GIA. As of early February, no governmental authority has said a word; public press reports came and went with little apparent harm; the public at large seems unperturbed; and the trade hopes no further bungling occurs and no prosecutions are initiated.

It’s too early to say we have seen the worst of the problem, and some events may cause new headaches. GIA has dropped its fund-raising activities and eliminated preferential fees—two activities that were misconceived and that compromised the integrity of the process from the outset. Meanwhile, it doesn’t help that a couple of counterfeit reports on large stones, which turned out to be treated or synthetic, were found in Antwerp, Belgium. No crook would create just a couple of counterfeits, so there are bound to be lots more. Are there new suits pending against GIA? Are other diamond companies being implicated? We don’t know—yet. And we don’t know if any ongoing investigations by law-enforcement agencies will result in indictments.

So we have to consider the possibility of a future with a weakened GIA (or worse) and one in which there will be many labs doing grading—something we see already. Still, there is value in having a dominant grading authority like GIA. The more it is known by the public and promoted by retailers, the more the public can feel confidence in their purchases. But that may not be how it turns out. As it is, too many anecdotal stories and surveys show that jewelers are often viewed with as much suspicion as used-car salesmen.

Does everyone in the trade fear a GIA catastrophe? Who would be hurt by such an event? And who might be helped? I recall a time when most diamond companies had their own grading systems and price lists, and they managed just fine. GIA standardized grading to a large degree and Rapaport’s price list was the result. (Many people blame Rapaport for killing margins, but a price list based on GIA’s standards was inevitable—Rapaport simply succeeded best at it.) AGS’s cut grading—and now GIA’s—essentially completes the commoditization of diamonds.

We cannot go back to the old days, but it seems to me that Internet retailers would be hurt by any impugning of diamond grading, especially GIA’s, because of the prevalence and acceptance of those reports. I’ll bet that Tiffany would very quietly profit because they have their own reports—and great public confidence. So might other brick-and-mortar stores that know how to make best use of in-house G.G.s. One retailer has already expressed that sentiment to me. It would be ironic if GIA-trained G.G.s end up being the most potent competition and a part of GIA’s undoing.

I am not in any way promoting or encouraging such an outcome. Quite the contrary. I think the industry would be greatly harmed if the GIA case became a real public scandal. We are not going back to the old days no matter what, as I said, so we should reinforce reputable grading. It is going to be with us forever.

If it develops that we will have many labs, so be it. As one dealer said to me in the midst of blasting perceived incompetence and greed by GIA and client miscreants, we may see a day when stones will have two reports from different labs. If they do not agree exactly, it might actually help describe and illustrate that grading is as much art as science. Maybe we will start to back off from senseless striving for perfect grading. And maybe we will see better margins.

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