I have heard it said that if you really want to distrust the mass media, read articles on a subject you know a lot about. And so it is with diamonds. Every six months or so, I come across articles along the lines of “diamonds are a scam.” (See recent pieces in The Huffington Post, PolicyMic, and Bustle.) Now, JCK’s editor-in-chief Victoria Gomelsky, Trace Shelton at Instore, and Edahn Golan at IDEX have had their say on these articles, and their takes are all worth reading. But I’d also like to talk about some common assertions, look at where they came from, and why they keep popping up.
First, let’s start with something you hear a lot: “Diamonds are not rare.” Now, this is true, to an extent. You can buy diamonds at any mall in America. Any item that is available within a 10-mile radius of most Americans is not rare. But high-quality diamonds are not so easy to find. And the biggest, best-quality diamonds are rarest of all. Wealthy investors wouldn’t spend $30 million for a 118 ct. D Flawless if there were piles of them lying around somewhere.
When people say “diamonds aren’t rare” they generally mean the supply of diamonds has been artificially constrained. And yes, for decades, De Beers did stockpile diamonds in order to keep the prices high. Now, however, its market share is 35 to 40 percent, and it no longer makes sense to do that. In addition, De Beers’ agreement with European Union antitrust authorities forbids it from stockpiling. As does the American antitrust class-action suit that became final in 2012, which requires De Beers to:
…abide by state and federal antitrust laws, prohibits specific conduct that Plaintiffs believe has been anticompetitive in the past, limits De Beers’ purchase of rough diamonds from a third party to 40 percent of that third party’s production unless a regulatory agency gives express approval otherwise, prohibits stockpiling of rough diamonds, and prohibits resale price maintenance agreements by De Beers.
(And really, think about it. If De Beers went through the trouble of paying $300 million to settle an antitrust class action regarding its anticompetitive conduct, it wouldn’t then go out and repeat the same behavior that led to the lawsuit. That would mean it would get sued again.)
The diamond industry used to be run by a cartel. It isn’t anymore. You would think if these writers really cared about all this, they would be happy about that. Instead many just gloss over or ignore it, even though the information has been out there for years. (See: The Economist, Bloomberg Businessweek, The New York Times, Kitco, etc.)
The other thing you hear a lot is that “diamonds have no value,” that they are just shiny rocks. This is also true and false. Diamonds have value because we as humans give them value. Just like we do for an Andy Warhol print—which, after all, is just paint on a canvas, with no practical use. Or a piece of paper with Beatles lyrics on it. Or a gold bar, Rolex watch, Louis Vuitton handbag, or iPod. Marketing played a huge role in fueling desire for diamonds and diamond engagement rings in particular. But marketing also played a role in the rise of Andy Warhol. Not to mention the Beatles, Rolex, Louis Vuitton, and the iPod.
Some of the worst commentary out there relies heavily on a 1982 article in The Atlantic by Edward Jay Epstein titled “Have You Ever Tried to Sell a Diamond?”, adapted from his book of the same year. (One blogger for Priceonomics seems to have just rewritten Epstein and called it a day.) The thing about that Atlantic piece is, it’s 32 years old. It talks about standard 200 percent markups on diamonds. Those don’t exist anymore. And today, many jewelers buy off the street. If you Google “we buy diamonds,” you get 1.5 million results. According to one estimate, $1 billion in diamonds has been traded in the last few years. So Epstein may not have had luck selling his stone. But plenty more have.
Will you get full retail value for your diamond the day after you bought it? Of course not. But a diamond holds its value a lot better than many other purchases. If someone wrote an article titled “Have You Ever Tried to Sell a Three-Year-Old Microwave Oven?” he wouldn’t have much luck either.
Now, diamond prices are a lot more volatile than they have been in the past. That is one aftereffect of the decline of the cartel structure. But as countless consultant reports will tell you, the long-term picture is for diamond prices to rise, because demand is increasing while supply isn’t. And really, if anyone believes his diamonds have no value, please send them to me. I will be happy to take those worthless objects off anyone’s hands.
(One aside: Epstein, who did uncover a lot of interesting information in 1982, just reemerged with an article: “Will the Diamond Cartel Survive?” In 2009, he wrote an article called “Can Diamonds Survive the Free Market?” You would think that after three decades of predicting the industry’s doom, he’d at least consider a more nuanced view on the subject. And while his original tome did feature some impressive shoe-leather reporting, he doesn’t seem to have done much work on the industry since then, and his recent article is isn’t much different from his 2009 piece, which in turn rehashes his 30-year-old book. Even Epstein, it seems, is recycling Epstein.)
Now, some of these authors are just lazy, repeating facts that are “too good to check.” But in the end, I don’t blame these guys (and most of them are guys). Our industry is at fault. And not just because it’s had, at times, a genuinely ugly history. It’s because it doesn’t stick up for itself.
What kind of lame business lets people spread untruths about it and never responds or tries to correct them? The only people countering these articles are me and my colleagues in the trade press, and that really isn’t our role. Even De Beers never bothers to reply to these things, and it gets slammed worst of all. Considering it wants to establish itself as a consumer brand name, that is a little nuts.
There is talk that the reconstituted World Diamond Council may represent the industry publicly. That would be welcome. Contrary to what you may have read pre-Valentine’s Day, diamonds are not worthless. But if this industry keeps ignoring its public image as well as the attitudes of younger consumers, and if it can’t get its act together to promote or defend itself, it may prove its worst critics right after all.