Okay, I’ve done enough reading about diamonds and DeBeers to know that the “precious” nature of diamonds was to a large extent a manufactured and carefully/perilously maintained psychological campaign, couple with some good old fashioned monopolism, artificial restrictions on supply, and cartel behavior/price controls.
The Atlantic published this piece 27 years ago:
foreseeing a none-too-distant glut/collapse due to a combination of DeBeers losing near-total control of supply (mainly due to Western Australia) and the possibility that, sooner or later, people would stop observing the unwritten rule that you don’t sell grandma’s engagement ring, leading to a cascade of people doing just that and flooding the market with stones that would compete with the ones DeBeers mines each year.
Since then it is my impression that the Australia production is online and as big as expected, plus bigtime discoveries in Northern Canada not known about at the time of the Atlantic article, and my impression that synthetic diamonds are either close to or at a viable alternative to real ones. Plus, Blue Nile and other Internet sites must have done some damage to the traditional opacity and ridiculous markups of the wholesale and retail pricing calculus.
So – why when I was browsing through Blue Nile, or when I visited Tiffany’s with the ex, do I not see glut-level pricing? A nice (not flawless) 1.5 carat ring would cost I don’t know $30k.
I’d imagine DeBeers still has some clout, and I’m sure the marketers have done amazing things in pushing new products at all price points, and no doubt exploiting newly-affluent and aspirational Indian and Chinese markets.
But if the “investment thesis” for diamonds was as seemingly-emergently-clear in 1982 – why haven’t prices plummetted? Or am I wrong in my vague impression that they have not, on an inflation-adjusted basis?
What good is a cheap diamond? Being expensive is their sole virtue.
Buying a diamond is basically the same thing as going out to an expensive restaurtant or buying a sports car - not just a waste of money, but an act in which wasting money is the entire point. It’s certainly not an investment.
Diamond prices are high because both diamond manufacturers and diamond consumers are interested in keeping them high.
Fine dining and fast cars are as much about the experience as anything else. Yes, a PB&J on Wonder bread will work just as well, and you should probably sell your car and ride the bus to work, but wouldn’t you rather something a bit nicer if you can afford it? Isn’t that the point of it all, anyway? Is anything above the bare minimum now a lavish waste of money?
Oh, you like wheat bread? Why don’t you just make a sandwich out of $100 bills, Rockefeller.
Yes, yes, the “status symbol” aspect is there. But just as with your other examples, I don’t totally buy it. Prime steaks taste good, and it honestly never occurs to me that I am enjoying them because they are expensive. Hell, friends and I are forever seeking out restaurants with great food, food better than we could prepare, at a good price point – and there are enough competing restaurants that we can usually find it, especially when there’s a beef glut (I kind of think there’s one on now – I found prime steak for $4.99/lb. at the warehouse store, and it tasted great).
Not everyone with money, who enjoys luxury items, enjoys them principally or even mostly because they’re expensive, or even rare. If foie gras were 49 cents a pound and were the staple food of Mexican barrio dwellers, I’d be slurping it down by the barrel.
So while the sellers have the interest in propping up prices, I can’t fully or even mostly agree with you that buyers do. Sure, there will always be some idiot willing to pay $10000 for some vintage Petrus, but there are also plenty of wealthy SWPLs enjoying the heck out of their two buck Chuck. So, with the posited loosening of the cartel/supply lines – I’d imagine diamond consumers would smell blood in the water as much as any other bargain hunters.
If I’m in the diamond selling business does it make sense for me to tacitly cooperate with De Beers in limiting supply so I can get the big prices, or to go head to head with them and flood the market?
What is the rationale for any diamond supplier to do this?
Diamond prices have plummeted. The most notable area would be in the .01-.50 ct. range. We no longer buy them from the public because we have so many and you can’t own everything. We’re even glutted on 1 carat+ diamonds.
When I went to work for my current employer, we bought diamonds @ 50% of Rap. We resold them to the public at 100% of Rap. If we had to order a diamond from a wholesaler, we would have had to pay between 60%-80% of Rap. That would have been in the 1980s up until perhaps 2001. Then, two things happened.
The dot com implosion in March of 2000 set the stage. What were things really worth?
9/11/2001 then happened. Life became uncertain. Many things tanked in terms of price. Where diamond wholesalers used to want 60-80% of Rap, you could now buy(for cash) diamonds at 50% of Rap. So, we lowered our offers to the public to 40% of Rap, since we could buy a stone from a wholesaler at 50%.
As the decade proceded, we found the market even weaker, so in or about 2005 we lowered our buys to the public to about 35% of Rap, and today we’re at about 30% or Rap. except for 2+ carat diamonds. It sounds hearless, but there is truly NO wholesale market for most diamonds.
I guess that the guys who grow artificial diamonds are keeping their prices high. There seems to be no reason to bomd the pricing-the market for gem quality diamonds is only so large.
People who buy large-karat diamonds are in for a shock, if they try to resell their gems-you get 20-30% of what you paid-nice inflation hedge!
The Atlantic article explains that indeed, it worked that way for awhile. Most of the diamonds came from a single, sewed up geographic area (there was also Russia but DeBeers coopted them). They went through a single corporation that rewarded price maintenance and punished deviation. There was a large element of familial and ethnic solidarity in the inner circles of the industry.
The point though, and I alluded to it in my OP, is that the DeBeers model was crumbling as early as 1982 because DeBeers couldn’t monopolize the new supplies of diamonds (Australia, now Canada), the Israeli cutters started deviating from the DeBeers party line, and there was some dawning consumer realization that diamonds as stores of value were an awful proposition.
The successful cartel is a lovely thing to have for the cartel owner, but for no one else. This is why you don’t really see cartels for beef or wine or cars, especially when increasing information flow makes clear that the scarcity myth is just that.
The rationale to buck the DeBeers cartel comes from: (1) a wholesaler or retailer frustrated because he’s on DeBeers’ C list and doesn’t get much inventory from London, so the high retail prices do him little good because the “scarcity” is being maintained at the expense of limiting him to a low volume of those profitable sales; (2) the owner of a new mine outside S. Africa/Russia who doesn’t want to accept DeBeers’s take it or leave it price offers; (3) the African mercenary who has neither the patience nor wherewithal to deal with DeBeers when he digs up or loots an increasing number of blood diamonds; (4) the consumer who wants a big shiny diamond but would just as soon pay half or a quarter of DeBeers asking price; and (5) the ambitious retailer who thinks he can sell at 80% of the DeBeers target retail price and more than make up for the lower price by cornering half the business in town, as opposed to selling 20 rings a year at bust out retail.
This is how price wars begin, and they generally do begin sooner or later in most markets. Cf. the airline industry – “selling seats at a premium price is great, who’d ever want to stop that?” After deregulation, we found out: lots of people. The decline of DeBeers roughly=deregulation – I’d have thought.
De Beers did a deal with the Argyle diamond production (the West Australian mine.) It was clearly in both party’s interest to do so. Every diamond producer has exactly the same dilemma in front of them. Compete and drive the prices down, or cooperate and maintain the high prices at the cost of a lower market share. Since a diamond is intrinsically close to worthless the answer is pretty easy. 10% of a market where dimaonds go for tens of thousands of dollars versus say 50% of a market where they go for hundreds of dollars. (OK, probably a bit extreme, but you get the idea.)
Comparing diamonds with a fine meal or a sports car is, well, a bit silly. Paying for something of high intrinsic quality is always a lot more worthwhile. The car or meal costs the producer a great deal to actually make. Many restaurants, and most high end car manufacturers are not making big money. Indeed most sports cars makers have a history of cyclic bankrupcy. The logic of such things being where wasting money being the entire point is silly. If you don’t enjoy the meal, and it cost a lot, it is a bad deal. Not a great deal different to going to the movies, a show, or concert, and not enjoying it. I could have spent $150 to see Beyonce in concert last month. Now for me that would have been not just money wasted, but someone would have owed me a few hours of my life. But $70 to see the local state orchestra play Beethoven’s Eroica? One of the best nights out in ages. The money is gone. “Wasted” it seems since I can receive no return on the investment.
For some people there is no doubt a high end sports car is not much different to a diamond. I find it sadly amusing to see a Lamborghini Murcielago pottering down a city street at 30km/h. In such circumstances it is a terrible driving experience. An utter waste of time, and money. However, I would sell my soul for an Aston Martin DB9. But I’m not a drug dealer or football star.
If you want to compare dimaonds with anything, the answer is to look to the male of the species - and the answer is high end Swiss Watches. $250,000 for a watch sir? No problem. And no, there are no diamonds encrusted on it. Rolex are the cheap end of the market. Patak Phillipe is where you want to start looking. Look for terms like tourbillion and repeater.
Talk to a lot to girls about diamonds however, and you will get a very clear story. It is all about the cost. It is a powerful symbol. It forms part of the way they define themselves. So in many ways it is money very well spent. The simple reality is that if you started churning out $10 diamonds tomorrow, something else would take their place in the market. It isn’t that diamonds are overpriced, it is simply that they are what occupy the maket niche at the moment.
However, it’s nigh impossible to tell a good fake diamond, like CZ from the real thing. CZ and other subs sparkle just as well(actually better), etc.
wiki= "*There are a few key features of cubic zirconia which distinguish it from diamond, some observable only under the microscope or loupe, for example:[citation needed]
* Dispersion: With a dispersive power greater than diamond (0.060 vs. 0.044) the more prismatic fire of cubic zirconia can be seen by even an untrained eye.[citation needed]
* Flaws: Contemporary production of cubic zirconia is virtually flawless,[citation needed] whereas most diamonds have some sort of defect, be it a feather, included crystal, or perhaps a remnant of an original crystal face (e.g. trigons).
* Refractive index: Cubic zirconia has a refractive index of 2.176, compared to a diamond's 2.417.
* Cut: Some cubic zirconias use different facet shapes than are typically used for diamonds. This difference would be visible under close inspection with a loupe.
* Color (or more precisely, the lack thereof): Only the rarest of diamonds are truly colorless, most having a tinge of yellow or brown to some extent. By comparison, cubic zirconia can be made in most cases entirely colorless: equivalent to a perfect "D" on diamond's color grading scale.*"
If you have the original of a lithograph, it is any better than the rest in the edition? Or just more expensive? Is a first edition, signed by the author- any better read than a quality paperback, bought used?
*At best, *Diamonds should sell for maybe double the price of CZ if we’re talking “purty”. Not hundreds of times more.
But if it’s all about the expense for its own sake, why haven’t diamonds been replaced by gems which are really genuinely rare, like star sapphires? Diamonds are only rare because DeBeers says they’re rare, but star sapphires aren’t found much in the ground or in warehouses. Plus, as anyone who’s actually seen one can attest, they’re far, far prettier than diamonds.
I have a friend who bought his fiancee (and still wife) a substantial engagement diamond. Some of his friends were needling him about the cost (around $40k). His response: “Are you crazy? If I’d had any idea how much stock women put in this, I’d have bought her one twice the size. She showed it to all her friends and female relatives, and that instantly made me respectable and impressive to a bunch of women I’d never met.”
Diamond’s actually useful/potentially useful for all sorts of commercial/industrial/scientific purposes. IMHO, as diamond synthesis techniques improve that will likely be the death knell of the diamonds-are-precious paradigm. Just like aluminum; it used to be very valuable and a high status substance, but making soda cans out of the stuff makes it impossible to romanticize much.
The scientific value of gem quality diamonds is pretty limited. The two I usually quote are: Window on a Venus lander, laboratory studies for very high compression mineralogy (where you need a pair of transparent diamonds so you can see what is happening as you compress something between them.) I’m sure there are more, but this provides some indication of the range. It is only if you need both transparency and another of diamond’s characteristics you need gem quality. So hardness or very high thermal conductivity. Maybe there is a role in semiconductor physics for gem quality, with a close to perfect crystal structure, but epitaxial grown diamond layers seems to cover that.
As to the issue of De Beers “conditioning” or similar. Yup. Absolutely. Diamonds as an engagement ring was De Beers. “Diamonds are forever” was De Beers. They are smart people. Just very good marketing. Our lives are full of it. Women still remember (or have been taught about) Richard Burton spending the value of a small third world nation on Elizabeth Taylor. As one of the “great love stories” of the celebrity magazines, this enters the shared consciousness of women world wide. This is what you are buying when you buy a girly a diamond. You are implicitly Richard Burton to her Elizabeth Taylor. As symbols go it doesn’t get much better than that. De Beers should have given him the diamond for the marketing value that bought them.
I used to have a deep disgust about the whole thing until I realised the core reason. Some women really need and want that symbol in a manner that is hard to grasp if you are a male of the species. It really doesn’t matter what the article is. But it needs to be recognisable, and almost common currency. A super rare sapphire is harder to understand and value.
It will be very interesting to see what might replace a diamond if they do become trivial to make. I would like to imagine that high quality artisan crafted jewellery might. But I don’t think it works in quite the same way. A solitary diamond carries the whole baggage in one tiny, highly portable, and constantly displayable stone. And it really does last forever. Doesn’t go out of style, doesn’t wear out. You can wear it into your dotage. As a distillation of the market it is unbeatable.
Men don’t have it so easy. If you are rich, a trophy wife is a good start. And that gets us back to diamonds. On the other hand, if that isn’t you, you can show off your worth to fellow alpha males with expensive cars, pens, watches, and boats. We are shallow creatures.
But to render it worth less it doesn’t need to be gem quality; just common. To go back to my example of aluminum; if someone manufactured jewelry out of some really shiny, pretty aluminum alloy it wouldn’t have the kind of aura of status that diamonds do, because aluminum is utilitarian these days. If diamond turns into an industrial materiel like steel or aluminum, something that you run into everywhere you look I don’t see diamonds maintaining their mystique even if the industrial stuff isn’t gem quality.
In order to be regarded as something ultra-special, it has to be something not used for common purposes.