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...