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Five myths about diamonds


#1

Hi Guys,

There’s an interesting article in the Washington Post, regarding “5
Myths about Diamonds”. Worth reading, if only for a perspective from
outside the trade.

Regards, Brian Meek.

By Tom Zoellner
Sunday, July 4, 2010

Diamonds, the ads say, are forever. Whether or not that’s the
case, diamond jewelry is a powerful symbol of status and love,
and a $72 billion-a-year retail business worldwide. Diamonds can
also be a key source of funding for violent conflicts in Africa.
A series of wars bankrolled by “blood diamonds” in the 1990s
prompted the United Nations to pressure De Beers and other
jewelry industry giants to set up a program known as the
Kimberley Process Certification Scheme to track the origins of
each stone and assure customers that their diamonds are free of
the stains of war and misery. But late last month, a four-day
Kimberly Process meeting in Tel Aviv foundered over the question
of whether to approve the export of diamonds from the Marange
fields of Zimbabwe, where torture and murder go unpunished and
profits fund the repressive party of President Robert Mugabe.

How did these glittering shards of compressed carbon become such
a profitable business in the first place? The answer, it turns
out, is complicated – and many of the things we believe about
diamonds aren’t exactly true.

  1. Diamonds are rare.

Although you won’t stumble across a diamond while digging in
your tomato garden, they are far more common than their cost
suggests. The big gem companies aggressively control the supply
that arrives at market, creating artificial scarcity and high
prices.

This practice was born in the diamond fields of South Africa in
the 1880s, when Cecil Rhodes, the chairman of De Beers
Consolidated Mines, discovered that he could inflate prices at
will simply by locking up the rights to every diamond mine he
could find. His successor, Ernest Oppenheimer, developed a
complex network of wholesalers that gave De Beers effective
control of up to 90 percent of the world’s rough-diamond trade
through most of the 20th century, as the company hoarded stones
in basement vaults and doled them out strategically.

The Oppenheimer family’s iron grip on the global supply chain
fell apart in the 1990s when Alrosa, a diamond company owned by
the Russian government, and the Argyle Diamond Mine in Australia
began to sell their stones independently. De Beers’s share of
the rough-diamond trade is now 40 percent and falling.

Interestingly, though, the end of the De Beers monopoly has not
led to aggressive underbidding: Everyone involved seems to
recognize that price wars could kill the diamond goose. And
stockpiling still happens. Although a healthy 163 million carats
or so are mined annually, a certain amount of that yield is
withheld from the marketplace. Alrosa, in particular, sold a
substantial percentage of its diamonds to a metals bank in 2009
rather than risk flooding the market in shaky economic times.

  1. We’ve solved the problem of “blood diamonds.”

Not really. The Kimberley Process has always been more like a
low brick wall than a prison fence. It soothed the public and
stopped the most timid criminals, but those who want to skirt it
can easily find a way. The most frequent scam is to move
diamonds across a border and have them relabeled. To take one
example, the human rights group Partnership Africa Canada has
shown that Guinea exports far more diamonds than it could hope
to produce. The stones are coming from somewhere else,
highlighting the strength of smuggling and money-laundering
networks that could be used to transport blood diamonds should
another war break out in the region.

In some cases in which smuggling was too blatant to ignore – as
in the Republic of Congo, the Ivory Coast and Venezuela – the
Kimberley committee took years to respond. When it finally
investigated, it did so with an eye toward appeasing the host
governments rather than cracking down on core problems.

Another weakness of the Kimberley Process is that it does not
have a comprehensive definition of “conflict.” It has thus
ignored multiple outbreaks of violence and pillaging in African
diamond fields because there was no “war” – in the classic
sense of one state fighting another or a state vs. organized
rebels.

The Kimberley rules certainly never anticipated a situation like
the one in Zimbabwe. The Marange diamond fields, containing some
of the most plentiful deposits in the world, were discovered in
2006; soon afterward, Mugabe’s soldiers moved in with
helicopters. According to Human Rights Watch, they massacred at
least 200 independent miners, then set up shop using conscripted
laborers, including children. Because Kimberley has no
provisions for what happens when a sovereign government kills
its own citizens, it seems likely that “Mugabe diamonds” will be
hiding in the global supply chain for some time.

  1. Diamonds have long been symbols of love and marriage.

The tradition of the diamond engagement ring was largely
concocted in the 1930s by De Beers’s ad agency N.W. Ayer & Son –
the same Madison Avenue shop that would later craft the wildly
successful slogan “A diamond is forever.” Through magazine
advertisements and Hollywood product placements, American
customers were sold the idea that even a man of modest means must
give a diamond to his betrothed, just as kings and aristocrats
had done in several examples cherry-picked from European
folklore.

In fact, diamonds historically served as tokens of statist
privilege more than anything so frilly and ordinary as love. De
Beers’s appeal to royal fantasies (and, more subtly, male fears
of inadequacy) nonetheless caught the American public’s
imagination, as did the notion that a groom is supposed to spend
two months of his salary on a rock. This, too, was an invented
custom. It was also flexible: In ad blitzes elsewhere, British
customers were told to spend one month’s salary, while the
Japanese were told to spend three.

  1. People will always buy diamonds.

Setting up a tollbooth at the gates of marriage was a brilliant
move. But even so, history shows that diamond sales tend to
mirror general consumer spending on luxuries. When hard times
come along, diamonds are among the first items scratched from a
shopping list. After the market spasms of 2008, diamonds had
their worst year in decades, and even the resilient bridal
market suffered. Total sales reportedly plunged 20 percent in
the United States, and this spring, De Beers slowed work at its
mines.

This isn’t the first time that a recession spurred some
reconsideration of the diamond ethos among consumers. The Asian
currency crisis of 1997 tore a hole in the Japanese diamond
market: Nearly every bride in that nation used to go to the
altar wearing a diamond engagement ring. That’s no longer the
case today.

Bad press on humanitarian issues seems to have had a lesser
effect, though. Even after the December 2006 release of the
movie “Blood Diamond,” a Leonardo DiCaprio action-adventure that
paints a harrowing portrait of the African diamond trade,
jewelers reported a reasonably good Christmas season.

  1. The famous Four C’s are the best markers for determining a
    diamond’s value.

This handy mnemonic – color, cut, clarity and carat – was
developed in the 1940s by the Gemological Institute of America,
still the world’s premier diamond-grading company.

Lore holds that every diamond is unique and a work of nature’s
art. But this idea was intimidating to American customers who
wanted a firm readout of a diamond’s worth before buying it. De
Beers therefore loved the Four Cs, and the company sent speakers
on a promotional tour to explain these standards as if they had
been observed for centuries.

But when it comes to the most popular kind of diamond – the
round, brilliant-cut stone that is a staple of engagement
solitaires – a key factor embedded in the cut rating is likely
to have a big impact on value. The “depth percentage,” the
relationship between the stone’s top and the angle of its
slanted sides, can make a diamond’s glitter a little more
spectacular thanks to the physics of light. The sweet spot? A
ratio of 58 to 60 percent. Too many buyers of stones of less
than two carats get hung up on minor gradients of color and
clarity, which are invisible to the naked eye and meaningful
only at the cash register.

For those who don’t plan to routinely ogle their stone under a
microscope, an easier formulation would be the Two S’s: size and
sparkle. The resale value of a diamond drops between 30 and 50
percent the moment you walk out of the store with it (a sixth
myth is that they are good investments; they aren’t) so you
might as well enjoy its illusory light while you can.

Tom Zoellner is the author of “The Heartless Stone: A Journey
Through the World of Diamonds, Deceit, and Desire.”


#2
There's an interesting article in the Washington Post, regarding
"5 Myths about Diamonds". Worth reading, if only for a perspective
from outside the trade. 

Calling it “from outside the trade” might tend to diminish it’s
appearance of validity. For my money, it’s quite well written
overall. It may not present new facts to most jewelers, but there are
a lot of somewhat less professionally educated (in gemology and
diamond history, etc) sales people who’d also do well to read the
article. The last paragraphs discussing the 4 Cs could be stronger
and clearer, perhaps explaining a bit more, especially the bit about
depth percentage, which kind of leaves you hanging without really
explaining what’s going on or what the various tradeoffs are for
consumers. But overall, it’s a pretty well written article. Better
than many I’ve seen. It covers many important aspects, without excess
sensationalism or overt bias in any particular direction. Just a
couple days ago I happened upon a web site blog with a “bridal
consultant” (self styled, I think) who assured her trusting readers
that the appropriate amount of money their guys should be spending is
SIX months salary, not two. Or three.

Remind me to stay away from women who insist on that figure. Bodes
poorly for the marriage potential and suggests financially
unfortunate future divorce settlements… (grin)

Peter Rowe