If the volatility of a diamond investment fund is concerning (see my earlier posts), even more concerning for the industry is a diamond futures market
based on the price of monthly cash-tenders for brilliant-cut diamonds between 1.01 and 1.19 carats.
Martin Rappaport’s intended move goes beyond his speculative Rappaport Index, and produces real sale prices as the basis for derivatives trading. The futures market creates a floor where people can trade the goods and pay him a fee for using his facilities.
The industry at large has much to fear from a further increase in commoditisation and transparency.
If transaction-based prices become publicly available, what’s to stop consumers using these precedents to drive their high-street negotiations? What difference in value is there between Tiffany and versus eBay
The move (and that of others, are likely to accelerate the unbundling of the jewellery industry into separate processes of diamond purchase and jewellery assembly, and will also encourage the emergence diamond leasing as a hedged ownership strategy - both for businesses and higher-end consumers.
In the process, the notion that “a diamond is forever” will be further undermined, and the American trend of diamond ‘upgrades’ is likely to become more and more prominent as selected consumers and brokers start to arbitrage the market.
Without historic category-wide mystique, diamond differentiation will need to be on harder considerations such as sourcing history, country of origin or fair trade credentials. In the commoditised marketplace that Martin is creating, synthetics will feel like a very real choice.
The industry may be drowing in $12 billion of debt, but swallowing the water won’t help…
Poor Martin enjoys the dubious honour of being the only scapegoat for the industry failures. He alone is recognised by name (the rest of the scapegoats are companies, or industry quangos). But he is not the evil.
Martin has an excellent ânoseâ to smell opportunities and to exploit them. His price list that was supposed to be an estimate of the non-existent cash-based New York market became the industryâs bible. While pricing of diamonds in the past was an obscured art, they became now an open book.
His actions, then and now, are the symptomatic of an entire industry that forgot how to market its product. This trend is an old one and my research traces it back to 1980, although the trend has intensified many fold in the last five years.
Martin is honest enough to point out that good jewellers will not need this vehicle as they are able to create proper added value. In other words, those who understand how diamonds should be marketed will prevail.
But what is clear is that an internal crash in the industry is increasingly inevitable and largely self-inflicted. These commoditising practices are simply the final nails that are hammered into the industryâs coffin.
The only hope I have is that the new industry leader will emerge who will lead both the death and subsequent resuscitation of this beautiful industry in a way that will be least painful to my friends and colleagues.
Saviours can sometimes come in unlikely form…eh Martin?
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