Are diamond marketing invention or are they really rare?

[Diamond2014]

I have been a quiet PriceScoper after I got the diamond engagement ring but I still read this forum before going to sleep. The more I see people dropping thousands of their hard work earned dollars into the diamond, the more I start to question if diamond is really worth that hard earned money.

Many people here probably heard of how De Beers have started the marketing with the "A Diamond Is Forever" campaign.

http://www.theatlantic.com/magazine/archive/1982/02/have-you-ever-tried-to-sell-a-diamond/304575/

I do understand De Beers is no longer a monopoly in diamonds and Russia has their feet wet in the diamond mining with many rough stones of their own.

I understand gold, gold was use as world standard currency when all governments paper currency goes out of order. But I could never fully understand diamond. I can never really find the exact TRUTH about whether or not diamond was a marketing strategy and there is an abundant amount of diamond out there that diamonds are not actually rare?

 

[denverappraiser]

It depends a bit on what you mean by 'rare'. The entire world's production of polished gem diamonds for a year would fit in a standard pickup truck. That's a fair number of diamonds but, on the scale of things, that's still pretty rare. It's correct that there are plenty of stones more scarce than that and that are scads cheaper. The unique thing for diamonds is on the other end. Demand. The bridal business is a big deal. There are 7 billion people in the world. Half are female. Half of those are of marriage age, half or so of those are actually single and a significant number of those might even be interested if the right deal were presented to them. Even a few percent of that is a lot of diamonds. We're talking a couple hundred million a year. Add to that the men who wear diamonds and the women who have several and we're talking about a huge demand. In the gem world,nothing else comes close. Is it worth it? Is it a fabricated demand? Yes on both counts. Nearly everything you buy is a fabricated demand. Cars. Electronics. Food (mostly). Entertainment. To be sure, DeBeers made and continues to make a lot of money but they pale to the likes of Apple and WellsFargo, not to mention Exxon and Facebook. Heck, King Entertainment, the maker of Candy Crush and founded in 2012, just went public for 7 Billion dollars. Frivolous is relative.

 

[MissGotRocks]

It depends a bit on what you mean by 'rare'. The entire world's production of polished gem diamonds for a year would fit in a standard pickup truck. That's a fair number of diamonds but, on the scale of things, that's still pretty rare. It's correct that there are plenty of stones more scarce than that and that are scads cheaper. The unique thing for diamonds is on the other end. Demand. The bridal business is a big deal. There are 7 billion people in the world. Half are female. Half of those are of marriage age, half or so of those are actually single and a significant number of those might even be interested if the right deal were presented to them. Even a few percent of that is a lot of diamonds. We're talking a couple hundred million a year. Add to that the men who wear diamonds and the women who have several and we're talking about a huge demand. In the gem world,nothing else comes close. Is it worth it? Is it a fabricated demand? Yes on both counts. Nearly everything you buy is a fabricated demand. Cars. Electronics. Food (mostly). Entertainment. To be sure, DeBeers made and continues to make a lot of money but they pale to the likes of Apple and WellsFargo, not to mention Exxon and Facebook. Heck, King Entertainment, the maker of Candy Crush and founded in 2012, just went public for 7 Billion dollars. Frivolous is relative.

Excellent answer! There are some that would never buy into the marketing part of a diamond and choose to go with a plain wedding band. You won't find them here on PS but they do exist! In terms of luxury items, diamonds would be the number one item on my list but I realize everyone does not share this passion. I do think that most American girls are wishing and hoping for a diamond engagement ring. It's just part of our cultural and we help to keep the diamond industry in business - lol!

 

[lxAsTrOxl]

Marketing invention. They don't hold much value you unless people give it one in MY OPIONION. They are commodities. And there are millions upon millions of other diamonds in inventory such as De Beers trying to work the market right now to kill surplus and drive up cost.

 

[denverappraiser]

That article is a touch over 30 years old now and although a few of the things they talk about have changed dramatically, notably the declining DeBeers market share and the globalization of demand, it's still an interesting read. I don't especially disagree with his premise that diamonds are a poor financial instrument in part because they're difficult to sell, but I adamantly disagree with the conclusion that this means they are a scam or that you shouldn't buy them because of it. Diamonds are extraordinarily cool little things. They are emotionally charged and serve as symbols of everything from love to power to success. It's a language that nearly everyone understands and that lasts a lifetime and beyond. That's why people buy them, and he doesn't even offer it a single sentence in the article. Call that a scam if you like but that same standard applies to nearly everything we buy so it becomes a meaningless term.

 

[denverappraiser]

Marketing invention. They don't hold much value you unless people give it one in MY OPIONION. They are commodities. And there are millions upon millions of other diamonds in inventory such as De Beers trying to work the market right now to kill surplus and drive up cost.

A lot of the big diamond companies are private concerns and aren't very forthcoming with their data but a fair number of them are public. Bain & Co regularly publishes investment data on the industry and they put a fair amount of research into it.

Their most recent report was about 6 months ago:

http://www.bain.com/publications/articles/global-diamond-report-2014.aspx

That too is an interesting read by the way, as are previous versions of the same report. They've been publishing them for a decade or so. They're not exactly light reading so you might want to get a cup of coffee before clicking that link but for folks interested in the business and politics of diamonds, I recommend it.

They go into a significant number of issues and risks facing the industry but strategic inventory being held by DeBeers for purposes of manipulating the market, as discussed by Epstein above, is long gone from the list.

 

[lxAsTrOxl]

Marketing invention. They don't hold much value you unless people give it one in MY OPIONION. They are commodities. And there are millions upon millions of other diamonds in inventory such as De Beers trying to work the market right now to kill surplus and drive up cost.

A lot of the big diamond companies are private concerns and aren't very forthcoming with their data but a fair number of them are public. Bain & Co regularly publishes investment data on the industry and they put a fair amount of research into it.

Their most recent report was about 6 months ago:

http://www.bain.com/publications/articles/global-diamond-report-2014.aspx

That too is an interesting read by the way, as are previous versions of the same report. They've been publishing them for a decade or so. They're not exactly light reading so you might want to get a cup of coffee before clicking that link but for folks interested in the business and politics of diamonds, I recommend it.

They go into a significant number of issues and risks facing the industry but strategic inventory being held by DeBeers for purposes of manipulating the market, as discussed by Epstein above, is long gone from the list.

Haven't read the article yet. But when you invite private buyers and offer them a box diamonds and pretty much leave it at "take it or leave it" with the premise if you leave you won't be let back in later. I consider that manipulating the market. Recently because the diamond market is getting deflated forcing DeBeers to be more "flexible" and letting buyers walk away and providing price cuts on rough. To me DeBeers will always be the root of all evil. What happened to cheeky and fun companies like Alrosa?!

 

[denverappraiser]

The DeBeers siteholder system is a way of extracting maximum money from their customers in the manufacturing sector, which translates into higher prices down the chain, but that too is hardly unique. For example, the deal with new car dealers involves buying and maintaining a certain level of inventory, pushing certain models and so on. If they don't do it, they lose the dealership. Most large companies do something similar. DeBeers didn't invent this but yes, they're good at it.

 

[denverappraiser]

I can never really find the exact TRUTH about whether or not diamond was a marketing strategy and there is an abundant amount of diamond out there that diamonds are not actually rare?

Diamond PRODUCTION statistics are actually pretty good. For the most part, source countries are different from consuming countries so every diamond needs to pass through customs at least twice and in two different places. That's all public record and nearly every country publishes data on it. There's a lot of smoke and mirrors in this business but that particular issue is pretty well understood.

 

[WinkHPD]

Marketing invention. They don't hold much value you unless people give it one in MY OPIONION. They are commodities. And there are millions upon millions of other diamonds in inventory such as De Beers trying to work the market right now to kill surplus and drive up cost.

A lot of the big diamond companies are private concerns and aren't very forthcoming with their data but a fair number of them are public. Bain & Co regularly publishes investment data on the industry and they put a fair amount of research into it.

Their most recent report was about 6 months ago:

http://www.bain.com/publications/articles/global-diamond-report-2014.aspx

That too is an interesting read by the way, as are previous versions of the same report. They've been publishing them for a decade or so. They're not exactly light reading so you might want to get a cup of coffee before clicking that link but for folks interested in the business and politics of diamonds, I recommend it.

They go into a significant number of issues and risks facing the industry but strategic inventory being held by DeBeers for purposes of manipulating the market, as discussed by Epstein above, is long gone from the list.

Haven't read the article yet. But when you invite private buyers and offer them a box diamonds and pretty much leave it at "take it or leave it" with the premise if you leave you won't be let back in later. I consider that manipulating the market. Recently because the diamond market is getting deflated forcing DeBeers to be more "flexible" and letting buyers walk away and providing price cuts on rough. To me DeBeers will always be the root of all evil. What happened to cheeky and fun companies like Alrosa?!

Fun and cheeky Alrosa is now the world's largest diamond company by volume if I am not mistaken. (If I am there will be a large number of people willing to correct me.)

I am not sure how anyone working in that part of the world and with some of the harshest winter conditions gets to be called cheeky and fun, as in my mind they must be some very tough individuals to work in those conditions. ( I do not remember if the Yakutia mine is actually in Siberia or merely near it, but either way it gets real nasty there in the winter.)

I would be interested to know why you think this Large Russian company is "cheeky and fun." Whether or not they are cheeky and fun I do not know, but they are hugely successful at this time.

Wink

 

[lxAsTrOxl]

Wink, I basically meant it as a sarcastic joke, I added the boohoo violin lol.

 

[ariel144]

Saw a documentary on PBS years ago. There was an old movie of them bulldozing mountains of diamonds. It was quite shocking....LOL! They went into how DeBeers controls the release of diamonds and pushed them through movies, songs, and ads. Interesting. Some stones that are truly rare are unheated rubies and sapphires and others even more rare but can't recall what they are.

 

[decisively_unsure]

D grade high clarity diamonds are pretty rare as well as some fancy colours, but you're right, supply and demand is regulated so that a glut of diamonds doesn't flood the market and thus hammer prices down. The origins of diamond engagement rings - if not the intent today -are deeply unromantic, if you can stomach the back story read this: http://priceonomics.com/post/45768546804/diamonds-are-bullshit

 

[teklit]

I can't believe no one has brought up diamond's hardness, which makes them suitable for everyday wear, and industrial applications. That's what makes them unique. Speaking of industrial applications, another unique quality is their thermal conductivity and insulation.

What makes cut diamonds expensive, the energy expended to sculpt them. This is where knowledge in economic theory helps. If you feel like getting lost on a google tangent, google "theory of value". For example, bitcoin is valuable because of the energy used to "mine" them.

The OP brought-up gold, it's unique property is that it is inert, it doesn't react at all, it's a noble metal.
Sterling Silver is the metal of gentleman.
Seriously though, silver is the most electrically conductive metal known to man. That's why it is used in modern technology, computer components, solar panels, medicine. It's anti-microbial, too, however copper is better at that.

 

[diagem]

Please do remember that long before DeBeers, kings (royalty) would kill for them...
So imo that's where the true value of Diamonds or other rare gems originated.

 

[oldminer]

Diamonds are rare in the sense that it takes a lot of money to obtain a fine gem quality stone and folks are willing to pay the price the market determines is necessary. The cost of production is high, from the vast mining operation, to distribution, benefaction of native countries, cutting costs, and marketing, let alone some profit all along in the chain. In the scheme of what comes out of the group, gem diamonds are far out numbered by industrial quality material.

Diamonds are not a commodity such as sow bellies or corn which can be traded in the COMEX. That's because the characteristics of any given weight of diamond can vary the value a great deal. If you wanted to trade just 1.01ct round, D-IF stones, all cut to GIA EX-EX-EX, with no UV fluorescence and absolutely no other issues, then maybe you could trade them as a commodity. That may be what Rapaport hopes to do as he has tightened up his grading strategy and has made it harder to miss-grade diamonds in getting certain labs disciplined by the industry and diamond bourses.

Gem quality diamonds, across the board from D to fancy colors in all clarities, shapes and weights, cut grades and minor characteristics are not really "rare" like a Van Gough authentic painting is, but simply because there is a willingness to pay so much for some of them, the larger and finer examples, the entire family of diamonds is increased in value to an extent by market forces and successfully promoted as "rare" across the gamut of all gem quality diamonds. That's more marketing success than an indication of supply. No one can deny the successful marketing of diamonds has created a demand that has genuine and real legs which have stood the test of time fairly well. Rarity can be a relative term related to demand as well as actual supply.

 

[WinkHPD]

Wink, I basically meant it as a sarcastic joke, I added the boohoo violin lol.

LOL! And once again I am reminded that it is nearly impossible to convey the sound of voice in an internet post. I thought the violin was for "poor" DeBeers.

Wink

 

[WinkHPD]

D grade high clarity diamonds are pretty rare as well as some fancy colours, but you're right, supply and demand is regulated so that a glut of diamonds doesn't flood the market and thus hammer prices down. The origins of diamond engagement rings - if not the intent today -are deeply unromantic, if you can stomach the back story read this: http://priceonomics.com/post/45768546804/diamonds-are-bullshit

Sorry, but seriously, another article quoting Epstein who spent so many years back in the 70's and 80's trying to proclaim that the era of diamonds was gone? The article is old and trite and full of crunch berries at so many levels.

Yes, DeBeers may have used brilliant advertising to bring the diamond into fashion as THE ENGAGEMENT symbol, but it has stayed as that symbol for generations now. In this country, it is said that eight out of ten brides proudly wear a diamond engagement ring. Increasingly, brides in China and India also enjoy the blossoming tradition in those countries.

The erroneous claim in the quoted article that diamonds lose more than 50% of their value when you walk out the door with them completely ignores the many fine companies that offer buy backs for as high as 80% to their buyers. (Especially some of the better vendors on the Internet.) It is NOT the fault of the vendors that many consumers do not ask even rudimentary questions before choosing their vendors.

The article also quotes long out of date information as to the amount of diamonds that are controlled by DeBeers, and only at the end of the article does he acknowledge that DeBeers has not been able to continue its massive market share, but then says it does not matter because people believe the lie that diamonds are important.

Oh, and let's not forget conflict diamonds etc.

Sigh!

How about acknowledging the conflict coltan in our cell phones, and hello, can you say oil? Seriously, do any of us believe that there is not more conflict in our oil than in all the diamonds in the world?

I will just go out on a limb and guess that the author of this article uses both a cell phone and drives a car or otherwise uses oil in his life, but hey, he has to write about something.

The diamond industry has gone to tremendous lengths to remove conflict diamonds from the market and it is now estimated that less than 1% of the diamonds on the market come from conflict sources. Can it get better? Yes, and I believe that the industry will continue to work at removing these horrors from our market. However, I also believe that whether or not the author likes the tradition, that the tradition must serve some incredible societal needs, or it would not have become as big as it has, nor lasted so long.

The diamond engagement ring has become the symbol of Love, trust and admiration for many couples to mark the celebration of their engagement and the beginnings of their lives together. Further, the enduring beauty of diamonds make them a great gift for many occasions. I am blessed to work with such an incredibly beautiful item, and like rain off a ducks back, I continue to enjoy the futility of the people who feel the need to dredge up trite articles to try once again to destroy the business that I love.

As always, I am so happy to see them fail, yet again.

Wink

 

[decisively_unsure]

You misunderstood me Wink. I am on a diamond forum as a male who bought a lovely diamond for my fiancée and developed a passion for cutting, quality and the real beauty of diamonds!

Regardless of the origins of engagement rings, I only posted the article for a one-sided alternative rant for something that a lot of people don't know about. We are always fed one-sided views in our media, which is unfortunate.

This topic is about how rare diamonds are and the answer to that is that the market influences rarity as well as roughs i.e. VVS D grade are rarer. There are enough roughs around for it to be more of a commodity, but that isn't the reality in terms of supply and demand.

Peace out!

 

[hearts-arrows_girl]

Very interesting article. I new about the diamond pricing campaign thing by de Beers. Marketing ploys happen all over. Diamonds are a business. And businesses are in business to make money. If you are hoping that diamond prices will suddenly start to equal, lets say, garnet prices, now that more people know they are not as rare as thought to be, I doubt that's going to happen. They are still one of the most durable gems I know of, so still make a good candidate for a stone that will have good lasting power. Yes, they are probably over priced, but they are still the number one sought after gem for engagement rings, so sometimes you can't fight the system. No one is forcing any one to buy a diamond, so if you don't like the hoopla around "how rare they are, so you have to pay a premium", when they aren't quite as rare as people formerly thought, just don't buy one. At least, since you have read the article, you can make an informed decision and not feel like someone pulled the wool over your eyes. (I hope it is not harder for you since you probably only bought into the diamond game, because you knew your girl would be crushed if she didn't get one, because the market ploy sensationalism worked on her)...and me. LOL Thanks for sharing the article and your thoughts. They are very interesting and thought provoking.
At least... that is my opinion.

 

[Paul-Antwerp]

The article reminds me though: IBM PC's are horribly over-priced, and you would do so much better with a clone.



Live long,

 

[WinkHPD]

You misunderstood me Wink. I am on a diamond forum as a male who bought a lovely diamond for my fiancée and developed a passion for cutting, quality and the real beauty of diamonds!

Regardless of the origins of engagement rings, I only posted the article for a one-sided alternative rant for something that a lot of people don't know about. We are always fed one-sided views in our media, which is unfortunate.

This topic is about how rare diamonds are and the answer to that is that the market influences rarity as well as roughs i.e. VVS D grade are rarer. There are enough roughs around for it to be more of a commodity, but that isn't the reality in terms of supply and demand.

Peace out!

That is good to know. I was ranting at the article, and not at you, but I did not stop to think that it might be perceived of as such.

Wink

 

[Texas Leaguer]

The Epstein article is a very interesting read. The best thing about it is the DeBeer ad campaign piece. As far as the dire predictions of the imminent collapse of the "diamond invention", that failed to materialize, pretty much invalidating the central premise of the article.

Since 1982 when the article was written, much has changed in the diamond business. Global competition and demand have both increased. The result is that the market is being driven by global economic forces today, without as much central control, leading to the kind of price volatility we are accustomed to seeing in free markets.

Diamond mining has become increasingly more expensive, with new resources not being discovered at the rate that existing resources are being exhausted. Yes, gem diamonds are rare on earth, and they are expensive to extract and produce. No, they are not a required consumable like food and shelter. They are a luxury item. And like any other luxury item, in order to encourage demand effective marketing is important to message the value proposition. Marketers always associate positive emotions with the products they advertise and give the public reasons to buy it. One of the big questions about the diamond market going forward is who will do that messaging in the absence of DeBeers?

When compared to almost any other luxury item you can think of, diamonds have significant advantages. Diamonds are not a good investment vehicle for consumers - I don't think that is news to most of us. But they are a store of value that can be liquidated years and generations later. There are few luxury items that can be enjoyed for generations with minimal upkeep, and still ultimately be turned back into money.

I do think one of the biggest opportunities the diamond industry has today is in figuring out how to create a reliable and consumer-friendly exchange so that buyers have the confidence going in that there is a reasonable exit strategy if and when they want to sell.

 

[hearts-arrows_girl]

Great post TL!

 

[Texas Leaguer]

Great post TL!

Thank you H&A girl.

Sensational articles get attention because they are provocative and often play to fears of one sort or another. But you don't always have the hindsight of 30 years to weigh their validity. I do understand the context of the time that article was published as I had recently started in the business. It was a time when the first jolts of diamond price volatility were felt due to speculation in the trade, so there was an undercurrent of fear in the industry (which the article played on). Much of the article is instructive, but the author's conclusions were inaccurate as evidenced by the fact that his predictions were not born out by subsequent events.

Instead, what we have seen in recent decades is continued growth of the diamond industry, the recognition of diamond cut quality as the primary driver of diamond beauty, labs and research organizations dedicated to the scientific understanding of this key factor,
dissemination of solid information to the consumer about diamond quality and pricing which was historically closely held within a very non-transparent trade, consumer access to vast inventories of diamonds to shop and compare rather than the small selection historically available to consumers shopping locally, internet fueled competition that has brought margins down to minimal levels (the "keystone" markups mentioned in the article are a faint memory), and the development of new and exciting diamond cut designs (including the ability to recreate and improve retro cuts). The internet also gives consumers better ability to assess their merchants and find those that are dedicated to consumer education and customer care.

In my view, an industry turning so clearly in the direction of the consumer is a strong indication of healthy development and gives me confidence that the best days of the diamond trade are still ahead.