In a strange way, nothing frightens diamond people more than seeing prices go up dramatically. The current rise in big stone prices brings back all-too-familiar memories of the seventies boom, which degenerated, with unprecedented tragedy, into the eighties bust. The market here in New York was left absolutely devastated (the amount of sightholders was reduced by an estimated two thirds.)
I wasn’t around in those days, but here are some recollections of the boom times…
The late 1970s were almost mythological. You could buy something in the morning and sell it in the afternoon for a profit. Diamonds were very liquid; anything you bought was salable at a price. The peak for D Flawlesses was about $65,000 a carat. The prices would go up with each new price list and each new sight. You didn’t have to be smart; whatever you bought went up …
I had a psychiatrist in Tennessee who bought diamonds. I sold diamonds to a Viennese guy who sold pools. I had a folk singer buying diamonds. It was crazy.
Now obviously that is far from where we are. But the warning signs are there. Vinod runs down some of them: With the weak dollar, the very wealthy are looking for investments. Rapaport had dramatic increases on his list recently, and producers may be raising prices too. People in the rough market say prices and premiums are clearly out of whack.
Still there are differences. There is not much of an organized investment effort now, as there was back then. And at least some portion of the increases seems based on real demand, particularly from the growing upper class in Asian markets. I spoke to someone who works at a New York jewelry store who said they cannot stock enough big stones, and they are particularly popular with tourists trying to take advantage of the weak dollar. I also hear that the banks are more cautious now than they were in the 1970s.
But that doesn’t mean there isn’t a real cause for concern. In the 1980s, De Beers helped the market get back on its feet. We can’t count on that now. In fact, the newly assertive producer countries are probably happy to see prices go up. And some think the trend towards tenders and auctions is fueling the fire.
It’s clear that any increases that are not built on market fundamentals won’t likely be sustainable in the long run. We all knew that when De Beers gave up “custodianship,” prices would become more volatile. That may soon hit home in a big way.
Please, everyone: Be careful out there.
UPDATE: Check out Russell Shor’s excellent thoughts on this.