Despair in the Diamond Market

Isaac Mostovicz writes that diamonds as investments could destabolize the market...

Chaim Even-Zohar’s latest memo reveals the diamond industry in despair. At the moment Diamonds are not being sold to the market of consumer and what we see is inter-trading only. Banks do not see new money coming in, and while they hail the fact that debt went down by 20%, how much was due to real sales and how much was due to squeezing the empty pockets of the industry? The cancer has reached the producers, who act irresponsibly and pour billions of dollars into the market with the only short-term goal of survival. Alrosa lost half a billion dollars this year and De Beers struggles to finance its debt. All in all, somewhere along the line the industry forgot the consumer.

We all know the truth about diamonds for investment (short answer: they’re not), but the new trend that big players want to establish just shows their level of despair, trying to play on the world’s ignorance. This is not the first time that the trade, championed by De Beers, has done so. The world has believed that “all diamonds come from De Beers” and if you do not have a De Beers diamond, something is wrong with your diamond. I do not blame De Beers for not correcting this perception, but they were happy with this ignorance. What we see now, this attempt to attract investors, is something really dangerous. This raises some painful memories. During the heydays of the diamond boom before 1980, a Belgian worker decided to buy some diamonds for investment. When he came to us some ten years later with his parcel, we looked at it and literally had tears in our eyes. Here was a hard worker with a permanent layer of dirt under his nails and who had bought diamonds with full faith that his purchase was a good value that would appreciate. In actuality if he got 5% of his investment, he would have been lucky.

This was not an isolated case–I have a personal example: When my uncle left our company in 1975, he took, as part his compensation, a few parcels of polished goods that were estimated well below market price. When he tried to sell these goods twenty years later, he hardly recovered his investment even after repolishing and regrading many of the goods.

We also can’t forget the $1 trillion of goods at market price that are in the hands of consumers — these goods will be worth much less when consumers try to dispose of them. Jewellers pay about a third less on average for the same goods when going to their suppliers. When they buy from the consumer market, they pay a lot less for several reasons: they have to pay cash, the goods won’t always sell easily, and sourcing from the consumer market is not always steady.

On top of this, the jewellers’ market is very narrow and quite often they will try to move it up the supply chain to their supplier or supplier’s supplier, reducing the value they can offer even further. If the market tries to market diamonds for investment, they are literally cheating the market. Most of the goods that will be sold will fetch only a fraction of the investment when they are resold, even without any more mining. And even extraordinary large and special diamonds, which might have been a good investment in the past, won’t be a good investment if many of them are sold later on at lost or close to par.

You say of this article...

Bookmark and Share