Diamonds cartels and other economic intrigue

[goldenringlets]

In times past, it was said that the supply of diamonds was carefully regulated so as to keep prices artificially high, whereas, in fact, diamonds were so plentiful as to be "naturally" cheap. Was this, and does this remain true?

 

[NewYorker]

yes

 

[Richard Sherwood]

no

 

[DiamondExpert]

Dicussion?

 

[Hest88]

Somewhat.

 

[Hest88]

Okay, if want to start reading, my favorite diamond book is "The Last Empire" by Stefan Kanfer. It talks about both the historical mystique of diamonds and the establishment and rise of De Beers. It's a ripping-good read, and moves as quickly as fiction. Unfortunately it was published in 1993, so while it hints of the problems currently facing De Beers, it doesn't really address the rise of Russian and Canadian diamonds and, what I personally think will be the greatest threat to the diamond market, China.

 

[Richard Sherwood]

Here's the problem I have with that "diamonds are naturally cheap" idea, along with the "artificially maintained prices".

DeBeers only entered the picture about a hundred years ago. Diamonds have been objects of rarity and value for at least a thousand years before DeBeers came along. Their mystique is deeply ingrained in the human psyche, like gold.

How can something which requires such a massive scale of mining to unearth (roughly 250 tons of earth per 1 carat diamond) be considered common? How can something which costs a substantial amount of money to mine, process, cut, distribute and market be considered cheap?

How many Hope Diamonds have been unearthed in the past 1000 years? Red diamonds? D Flawless diamonds? Gem quality versus commercial quality?

The diamond market is also supported by the industrial and engineering sectors, as well as the gem sectors.

There is a price level at which something becomes unprofitable to mine. What point is this with diamonds?
If diamonds were half the price they are now, would it still be profitable to mine them?

My point is that part of the value of a gemstone is the amount of trouble and money it takes to get it out of the ground and onto your finger. In the case of diamonds, those costs are significant. There's no way that it will ever be "cheap", consequently there's no way diamonds are ever going to be "cheap".

Added on top of this logistical component of value, you've got the rarity component. The fact is that they are not a "dime a dozen", but a "carat a ton". There's no getting around this mineralogical component of rarity.

Then you've got the emotional component of beauty. There is no other similar gemstone that compares with the beauty of a diamond. Nothing else come close. People will always pay for this attribute.

Then you've got the practical component of durability. Diamonds are the hardest natural mineral known to mankind. It wears extremely well, century after century. People will always pay for this attribute.

Then you've got the practical component of a diamond's "staying power", in regards to universal recognition of it's value. A diamond is the most concentrated form of wealth known to mankind, with the exception of plutonium. Millions of dollars of concentrated value can be carried around in a person's pocket as they pass through the metal detectors of the world's airports. This fact has not gone unnoticed by individuals and regimes as they have planned escapes from trouble to freedom.

One common scenario in regimes which have collapsed (Nazi government, Shah of Iran's government, Russian government, flight of persecuted Jews, etc) has been the use of diamonds as a medium in which wealth has been easily transported. This is a very practical aspect of diamonds which many people groups and governments have a stake in seeing perpetuated. These are not entities which are "here today, gone tomorrow", but entities which have deep tentacles through the financial structure of the global economy.

 

[NewYorker]

that just reminded me - I just read an article that Al Quaeda bought $20 million worth of diamonds from some poor African country (can't remember which) just before Sept. 11 attacks to conceal their wealth.