Dan Atkinson explains why the diamond continues to sparkle around the world
Ask any businessperson to forecast the outlook for a product which last year saw sales dive 20% in the Far East, which meant extensive smuggling and selling on illicit markets around the world and which even saw that product enjoy its own health scare in the form of radiation 50 times the United States safety limit with the potential to cause cancer, and the prospect, you can be sure, would be on the catastrophic side of grim.
But that would be to assume a product that obeyed the usual laws of business. And we are talking about what Chambers dictionary describes as “carbon crystallised in the cubic system” — better known as diamonds.
And, although the sparklers’ sparkle may come and go, one thing diamonds do not do is obey the usual laws of business. Certainly not in Britain. Last year may have seen the stones lose their special appeal in some parts of the world, but in the United Kingdom sales of diamond jewellery shot ahead 14%. This year’s increase is likely to be a little lower, but still healthy. Post-slump Britain is on a diamond-buying binge.
It is a similar story in the US, where jewellery sales jumped 7% to 8% last year. Even Germany, with its five million-odd unemployed, is seeing demand pick up. Anyone would think there was a worldwide gemstone famine looming.
On the contrary; not only have there never been so many diamonds around, but supply is set to swell with the arrival on the market of Canadian stones.
Goldsmiths — who saw gold jewellery prices weaken ahead of Christmas as bullion prices plunged and are now suffering even deeper price cuts — must be seething with envy.
While wedding bands are going at a discount, engagement rings remain a highly profitable business. Only a few weeks ago, UK Foreign Secretary Robin Cook reportedly bought his friend Gaynor Regan a R4 800 diamond ring, prompting mutterings in some quarters that such a senior government figure really ought to have spent more.
But then, De Beers, the giant that both mines half the world’s diamonds and markets more than two-thirds of them, has cannily operated its own private inflation rate: once a chap was urged to lay out a month’s salary on the engagement ring. Mysteriously, this has now been transformed in De Beers’s advertising into two months.
It certainly gives those dithering men an incentive to betroth now rather than wait for the first posters suggesting a year’s pay to be the appropriate benchmark.
So we are splashing out as never before. But are diamonds an investment or just costly trinkets? De Beers’s advice is straightforward: diamonds should be nothing more than a “gift of love”.
Actually, it is not quite that straightforward. The industry’s big daddy doesn’t want to discourage entirely the suggestion that diamonds have intrinsic financial value, it merely wants to stamp on any repetition of failed attempts in the late Seventies to set up diamond investment schemes or diamond commodity markets.
Such attempts weaken De Beers; control of supply, in turn threatening to weaken prices, which in turn make diamonds less desirable, thus weakening prices further.
The De Beers view of the diamond market represents a sort of reverse balloon debate: only if nobody — miners, dealers, cutters, jewellery manufacturers, customers — jumps out of the basket will prices stay high and healthy.
And prices are remarkably healthy — at least at the top end. The most exclusive and expensive diamonds will always beat any other gemstone in terms of value, carat for carat (a carat is a fifth of a gram). At the summit of all diamonds is the so-called “D-flawless” with assorted rare coloured stones a little further down.
Such gems need no marketing support, no press adverts, no favourable movements in the dollar exchange rate. They have commanded colossal prices for centuries; diamonds appear in the Old Testament, in ancient Latin and Arabic texts and in old Eastern religions. Crusaders are reported to have carried them into battle as talismans. Kings and queens prized them above almost all other precious objects.
Industrial-scale diamond mining at the end of the last century changed all that and threatened to swamp the world market for stones. It was not Crown jewels such as the Koh-I-noor or the Cullinan I diamonds that faced price collapse, but the more run-of- the-mill stones of the type beloved by the newly wealthy Western middle class.
Hence the strict controls on supply, the result of which is that diamond values have risen overall by about half since the mid- Eighties. But this is an average. The Nineties have seen the market for bigger, costlier stones boom, while cheaper diamonds have suffered from price falls of about 30% in the last two years along. Widening social inequality seems to be splitting the market in two.
It is rough diamonds — those that have yet to be cut and polished and set in jewellery — that are sold through the De Beers “single channel” monopoly to the professionals. From time to time, outsiders attempt to build up stockpiles of “rough” as investments, and you, the ordinary investor, may be approached.
Remember three things. First, these diamonds may not have been obtained in conformity with either the law or regulations governing customs, import and export. Two, diamonds are not a commodity in the sense that gold, for example, is; no two diamonds are alike, making it impossible to operate a standard diamond contract. Three, unless you know exactly what you are doing, you are liable to lose a lot of money.
The lesson for the consumer is clear. If you can’t afford the biggest and best, then buy for enjoyment and not for investment.
Indeed, you don’t need necessarily to buy diamonds. Why not amethysts, rubies or emeralds? Well, diamond types are sniffy about rubies and emeralds, pointing out they can be easily synthesised. As for opals, well they were pretty popular in the early years of the century until word got around that “opals are unlucky”.
Word from whom? De Beers, of course.