September 17, 1998
The following is written with the intent of generating a
discussion that addresses issues that are tangents to the
general business of the jewelry trade. Questions and
statements are posed for the purpose of provoking response
and contemplation.
The gem business has essentially been the same for the past
100 years. Diamonds have the dominant player in the world,
with rubies and sapphires lagging well behind. What are the
primary forces driving the gem market now. Are the values
associated with these gems in a large sense false, and do
they serve to add to the growth of society?
DeBeers. The controller of the majority of the entire
diamond supply for our planet. Marketing and buying of most
rough and gem material has kept the value of diamonds rising,
even though the quantity of gem quality diamonds being
recovered from mining has exploded in the last 100 years.
To what extent will DeBeers be able to continue controlling
this material. How might they lose control? What factors
are most likely to eventually lead to their lose of control?
When is this most likely to occur? After all, this is really
like a chess match, DeBeers knows it will not always be able
to control the market. It=92s a matter of how many factors
they are able to maintain manipulating to their advantage.
Eventually, the cost to continue controlling those factors
will become cost prohibitive and others will be able to
enter the market to pose a serious threat.
Recently, the Russians and also the Australian Argyle Mine
has created a situation which may change the world diamond
environment. The Russians are an extremely economically
strapped nation that can benefit from the easy cash flow
generated on a black market. If Argyle is able to maintain
their mining operations and continue to sell their annual
production for the next several years then it will create the
possibility that the Russians will be very likely to break
from DeBeers to do the same. If this occurs, then it will
change the role of DeBeers in the world market considerably.
If this happens, then it will certainly also have serious
implications for the colored gem market as well.
Diamonds are important to the growth of humans because of
their importance in industry, technology, and they also
generate significant revenues to contribute to economies.
People have made jewelry a part of their traditions and
cultures, and diamonds make up a part of humans heritage and
are pasted down to future generations as remembrances.
Gemstones in general do contribute to the positive growth of
society.
The next question I pose is whether the cost of diamonds and
gemstones is justifiable within the present system of market
control by DeBeers. Are the margins earned low in comparison
to other raw materials? Is the current system of control by
DeBeers self supporting in the sense that market prices do
include the “control costs” to manage the changing market
variables? They must! However, are these costs (financial
tradeoffs) balanced in terms social benefits? Please post
your thoughts on these issues.
Sincerely,
Greg Duncan, F.G.A.