29 November 2018

The myth of the value of diamonds

Do you think diamonds are intrinsically valuable?  Read these excerpts from a superb article at The Atlantic:
The diamond invention—the creation of the idea that diamonds are rare and valuable, and are essential signs of esteem—is a relatively recent development in the history of the diamond trade. Until the late nineteenth century, diamonds were found only in a few riverbeds in India and in the jungles of Brazil, and the entire world production of gem diamonds amounted to a few pounds a year. In 1870, however, huge diamond mines were discovered near the Orange River, in South Africa, where diamonds were soon being scooped out by the ton. Suddenly, the market was deluged with diamonds. The British financiers who had organized the South African mines quickly realized that their investment was endangered; diamonds had little intrinsic value—and their price depended almost entirely on their scarcity. The financiers feared that when new mines were developed in South Africa, diamonds would become at best only semiprecious gems.

The major investors in the diamond mines realized that they had no alternative but to merge their interests into a single entity that would be powerful enough to control production and perpetuate the illusion of scarcity of diamonds. The instrument they created, in 1888, was called De Beers Consolidated Mines, Ltd., incorporated in South Africa...

De Beers proved to be the most successful cartel arrangement in the annals of modern commerce. While other commodities, such as gold, silver, copper, rubber, and grains, fluctuated wildly in response to economic conditions, diamonds have continued, with few exceptions, to advance upward in price every year since the Depression...

The diamond invention is far more than a monopoly for fixing diamond prices; it is a mechanism for converting tiny crystals of carbon into universally recognized tokens of wealth, power, and romance. To achieve this goal, De Beers had to control demand as well as supply. Both women and men had to be made to perceive diamonds not as marketable precious stones but as an inseparable part of courtship and married life...

 Since the Ayer plan to romanticize diamonds required subtly altering the public's picture of the way a man courts -- and wins -- a woman, the advertising agency strongly suggested exploiting the relatively new medium of motion pictures. Movie idols, the paragons of romance for the mass audience, would be given diamonds to use as their symbols of indestructible love. In addition, the agency suggested offering stories and society photographs to selected magazines and newspapers which would reinforce the link between diamonds and romance. Stories would stress the size of diamonds that celebrities presented to their loved ones, and photographs would conspicuously show the glittering stone on the hand of a well-known woman...

An N. W. Ayer copywriter came up with the caption "A Diamond Is Forever," which was scrawled on the bottom of a picture of two young lovers on a honeymoon. Even though diamonds can in fact be shattered, chipped, discolored, or incinerated to ash, the concept of eternity perfectly captured the magical qualities that the advertising agency wanted to attribute to diamonds...

Not only did it organize a service to "release to the women's pages the engagement ring" but it set about exploiting the relatively new medium of television by arranging for actresses and other celebrities to wear diamonds when they appeared before the camera...

Until 1959, the importation of diamonds had not even been permitted by the postwar Japanese government. When the campaign began, in 1967, not quite 5 percent of engaged Japanese women received a diamond engagement ring. By 1972, the proportion had risen to 27 percent. By 1978, half of all Japanese women who were married wore a diamond; by 1981, some 60 percent of Japanese brides wore diamonds. In a mere fourteen years, the 1,500-year Japanese tradition had been radically revised. Diamonds became a staple of the Japanese marriage...

An advertising campaign could instill the idea that the gift of a second diamond, in the later years of marriage, would be accepted as a sign of "ever-growing love."..

DeBeers devised the "eternity ring," made up of as many as twenty-five tiny Soviet diamonds, which could be sold to an entirely new market of older married women. The advertising campaign was based on the theme of recaptured love. Again, sentiments were born out of necessity: older American women received a ring of miniature diamonds because of the needs of a South African corporation to accommodate the Soviet Union...

Retail jewelers, especially the prestigious Fifth Avenue stores, prefer not to buy back diamonds from customers, because the offer they would make would most likely be considered ridiculously low. The "keystone," or markup, on a diamond and its setting may range from 100 to 200 percent, depending on the policy of the store; if it bought diamonds back from customers, it would have to buy them back at wholesale prices. Most jewelers would prefer not to make a customer an offer that might be deemed insulting and also might undercut the widely held notion that diamonds go up in value...

But a panic on the part of investors is not the only event that could end the diamond business. De Beers is at this writing losing control of several sources of diamonds that might flood the market at any time, deflating forever the price of diamonds...

By the mid-1980s, the avalanche of Australian diamonds will be pouring onto the market. Unless the resourceful managers of De Beers can find a way to gain control of the various sources of diamonds that will soon crowd the market, these sources may bring about the final collapse of world diamond prices. If they do, the diamond invention will disintegrate and be remembered only as a historical curiosity, as brilliant in its way as the glittering little stones it once made so valuable.
I'm embarrassed to have excerpted so much text, but there is much more at the link - essential reading for anyone pondering the purchase of a diamond for a loved one.

Reposted from 2012 to add some updated information from 2018:
The spread of synthetic diamonds in China, originally designed for industrial purposes such as oil drilling, is posing such a threat to the global diamond market that it has forced dominant player De Beers to invest tens of millions of dollars on methods to identify the man-made stones that look exactly like the real thing...

Indeed, even the most experienced diamantaire’s in the world can’t tell the fakes from those extracted from mines when using their naked eye, which is where technology comes in. More affordable prices, which are only seen dropping further over time, have already prompted budget shoppers to gravitate towards the man-made gems.

The arrival of lab-grown diamonds has challenged the widely-held assumption that diamond prices could only increase because supply in natural diamonds has peaked and due to strong Asian demand,” said Georgette Boele, a coordinator of precious metals strategy at Dutch bank ABN Amro...

Companies producing such stones have sprung up all over China, churning out an estimated 160,000 to 200,000 carats of gem-quality diamonds every month. That’s enough to propel the country to the world’s top spot in terms of synthetic production, industry insiders believe...

In a 2015 case in Shanghai, authorities found that 14 per cent of the rough diamonds and set jewellery in a sample labelled “natural” were man-made. Similar incidents happened in Mumbai, India, which is the world’s No.1 diamond exporting country...


  1. And this is why I asked for a sapphire.

    1. Sapphire, also known as aluminum oxide.

  2. I was going to have a ring made with a black stone... but their was a family heirloom that my mom passed on to her.

  3. De Beers ugliness goes way beyond monopolies and price fixing. May want to read up on the apartheid, labor practices and the treatment of blacks by these folks. Same tale in Africa, resources sucked out by multinationals and native populations abuses.

  4. monopolies and syndicates can really have an unusual impact on the value of a good.

    Take the other form of carbon we all like to burn, ever notice we haven't run out of it yet, there's more in the ground now as has ever been pumped to date and yet the price climbs?

  5. I'd never really lusted for a diamond, but I read this about a decade ago before I got engaged. I asked for (and received!) a laptop instead of an engagement ring. Far, far more useful and it held its value better. :)

    Glad to see it's still making the rounds.

  6. There is a really great book about this. "The Heartless Stone" by Tom Zoellner. He's also written about Uranium.

  7. I read this article the spring before I married (in October 1982). While I got a diamond engagement ring, it wasn't big and it did have a flaw, invisible to the eye. Didn't really care. This is the sentence that got me: 'Except for those few stones that have been destroyed, every diamond that has been found and cut into a jewel still exists today and is literally in the public's hands'. wow. Not rare at all.

  8. "Extraordinary Popular Delusions and the Madness of Crowds"
    all over again. The difference this time is it's all been engineered by one company.

  9. They'll still be useful for engineering purposes and can be used to make virtually wear free bearings

  10. The Diamond Empire- Oppenheimer family's cartel, Artificial scarcity (1994) - http://www.youtube.com/watch?v=i8A9JXLyRwc

    I loved the Youtube comment endorsing the book by Edward Jay Epstein "Have you ever tried to sell a diamond?"
    Ha, the marketing strategy ensured most wouldn't bother selling diamond rings on, but rather, pass them down as 'heirlooms'. Such trickery.


  11. It's been going on for a while and De Beers has successfully tied this up in appeal after appeal even after the judge ruled against them. Even when settled, this is small potatoes compared to the bundles of dough they have made.



  12. Jewelry is a weird business. I used to work at a jewelry store, and though for years a mouthed what i was told about declining to buy back, i had my doubts...until i took several old rings to sell. There was a tiny diamond ring, probably from the 1920s, but also a rather large topaz. Nievely i thought the exchanger might have an interest in the stones. The guy told me that literally no stone found on jewelry is kept (from his office at least, and all others he knew of) and instead they just melt down the settings and keep the metals. The stones are usually thrown out with the trash. There are many reasons cited, but basically the stones are considered so common and also so difficult to reset that no one bothers. It is only human dragons like myself that keep stones. The global value market is driven by metal, while the advertising market is driven by lies. On average, each gold ring at the exchange went for $15, and they did not bother with the silver; they told me i would get a way better price selling based on artistry or glamour at a yard sale, but warned me not to ask for more than $20 each, as the market simply does not want a used ring.


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