Why buy a diamond?

[denverappraiser]

Thanks Wink. I do have a correction and it's too late to change the post. 80M carats is only about 16 tons of annual production. That's still a bunch and the concept remains the same but 4000 is definitely wrong.

 

[TC1987]

You know, sometimes I think I have said something fairly well, then Denver Appraiser comes along and says it REALLY well.

Nicely said Neil.

Wink

+1 to both Wink's and Denver's replies. I was going to write a short post recommending a long walk on a short pier to help him think things over. But it was late on Sunday night, and I was too tired.

 

[houserabbitz]

Diamonds are in fact, not rare. They pose no real value, other than maybe 50% of your purchase price.

Looking forward to everyone's thoughts.

Bear in mind that the world has 5 billion people in it, half of whom are women, and a third or so of those are single adults. That’s a LOT of potential brides. Given that there are a significant number of married women as well as men who are also interested in owning them, and you find that there’s not really all that many to go around.

My only challenge to this statement is, though a growing trend throughout the world, the purchase of the diamond engagement ring is still primarily a Western tradition. I'd be curious to know what the actual demand is, and to which continents is it most heavily applied. I personally think diamonds are beautiful, but never really paid attention to them until I was proposed to. I've always put my own money into Hanoverian sporthorses. But that's another forum altogether.

 

[WinkHPD]

I received a link to the article that Paul wrote. Turns out it was longer ago than I thought, clear back in 2010. I am not a detailed analyst so perhaps someone who is into that will go look at what has happened in the years since it was first posted by Paul, but my "impression" is that the price increases predicted are well under way.

https://www.pricescope.com/journal/price-prediction-diamonds-my-analysis-alrosa-analysis

Wink

 

[denverappraiser]

Diamonds are in fact, not rare. They pose no real value, other than maybe 50% of your purchase price.

Looking forward to everyone's thoughts.

Bear in mind that the world has 5 billion people in it, half of whom are women, and a third or so of those are single adults. That’s a LOT of potential brides. Given that there are a significant number of married women as well as men who are also interested in owning them, and you find that there’s not really all that many to go around.

My only challenge to this statement is, though a growing trend throughout the world, the purchase of the diamond engagement ring is still primarily a Western tradition. I'd be curious to know what the actual demand is, and to which continents is it most heavily applied. I personally think diamonds are beautiful, but never really paid attention to them until I was proposed to. I've always put my own money into Hanoverian sporthorses. But that's another forum altogether.

The biggest growth area in diamonds, by a lot, is in China. Meanwhile Japan and Korea are already huge markets. Yes, this is a western, mostly American tradition, but it's definitely going on all over the world. All industry forecasts I read indicate this increasing exponentially.

 

[Karl_K]

Talking of price predictions:
The rough sellers have been trying to push up prices for months but the price of polished hasn't kept pace there is a lot of resistance to the increases and unlike in the past and De Beers doesn't have the power to force them through and the alliances are showing signs of breaking up.
An investigation into collusion by the rough producers would be very interesting.
What I see is a power shift from the rough producers to the overall market and they are fighting it.
If the rough producers win expect some large price increases.

It will be interesting to see how it all plays out.

 

[Karl_K]

The biggest growth area in diamonds, by a lot, is in China. Meanwhile Japan and Korea are already huge markets. Yes, this is a western, mostly American tradition, but it's definitely going on all over the world. All industry forecasts I read indicate this increasing exponentially.

Unless they price themselves out of the market which there are signs they are doing.
Which is why there is such a determined resistance to raising polished prices.
It will take a long time for China to catch up enough to cover even a small drop in US demand if they push too far.

 

[denverappraiser]

The biggest growth area in diamonds, by a lot, is in China. Meanwhile Japan and Korea are already huge markets. Yes, this is a western, mostly American tradition, but it's definitely going on all over the world. All industry forecasts I read indicate this increasing exponentially.

Unless they price themselves out of the market which there are signs they are doing.
Which is why there is such a determined resistance to raising polished prices.
It will take a long time for China to catch up enough to cover even a small drop in US demand if they push too far.

The Chinese bridal tradition is definitely changing. What it changes TO is an interesting question, but the to runner is the US model where the bride gets to choose who she will marry, the groom is expected to present her with a ring in advance, and that ring usually contains at least one diamond. Obviously there are other options, but that seems to be the top runner. What will they want in terms of style, size, budget and whatnot? I wouldn't venture to guess. It's possible to do diamonds pretty inexpensively and it's possible to spend a gigantic fortune. It's also possible to use other stones, synthetics, or none at all. If I were to be betting, I'd bet on it taking off like it already has in Japan and Korea. Natural diamonds. High clarity and colors. Very demanding in terms of cutting. Sized to fit the customers personal budget.

 

[Paul-Antwerp]

Forgive me, Karl, but since you have the habit of working from facts, you need to be corrected when you are stating hopes and feelings instead of realities.

Look at today's price-index of PolishedPrices: http://www.polishedprices.com/news/NewsDetails.aspx?NewsId=1000007750

This index is based upon actual transaction-prices, wholesale, in various diamond-centers. Where you might see resistance to price-increases in your most seen sizes (Fine, 4-grainers, for instance), check out what is happening in smaller sizes and 'commercial', double-digit going up to +20% in the course of a year.

Can you feel:
- the effect of new emerging markets, where demand is higher in smaller sizes, at first,
- the potential effect of economic hardship in mature economies, where more people possibly settle for smaller sizes.

All this going on, with the bigger, finer diamonds still going up in price.

Granted, this is wholesale-level. I grant you that this price-increase is not going full-force down to the consumer-level. Retailers are cutting margins to the ridiculous, and only part of the true underlying cost-increase is carried down to the consumer. But that is not tenable.

At some point in time, the wholesale-level has the option of either selling big numbers to cash-rich retail-organizations in the Far East or selling single stones on consignment to cash-poor retailers in the US. An exaggeration, granted, but if it is a question that I am facing, you can rest assured that the same dilemma is met behind all of the hundreds of doors in the diamond-streets of Antwerp, Tel Aviv and Mumbai. It is now about two months ago that I wrote a post here, showing how the number of Karl-worthy rounds on Rapnet is becoming very low, and you can see in today's price-index how that translates into wholesale-pricing.

All this comes obviously with ups and downs, and rest assured, all analyses point out that we are still in a market of relative equilibrium until 2016 or 2017.

Live long,

 

[Dreamer_D]

troll or not conversations like this once in a while are a good thing! for several reasons.
1: For every poster there are thousands of lurkers and more than few are asking exactly this question.
2: it sometimes helps to ground some of the more obsessed diamondaholics, there have been times I have needed it so don't be insulted!
3: it often leads to interesting information from Garry, Yoram, John, Wink or Paul who have a finger on the pulse of the international diamond situation.
4: everyone can learn something even from a troll thread if the regulars want it to happen and don't just start yelling troll.
5: the most annoying thing for a true troll is for a troll thread to lead to civil informative discussion from the regulars.

I agree with you karl.

There was a thread about this topic a month or so ago, though... I cannot find it now, maybe someone else can? "Why buy a diamond" or something?

Gems have long been a valued commodity, they were just not tied to marriage per se and diamonds were not always the most valuable gem. But, they are very small and portable whereas big bars of gold or wads of cash are not portable (or meaningful in many circumstances, like war, or bank destabilization). To many people, gems or gold is THE only way to "store" assets over time. Think of historical (and modern) accounts of persecuted populations fleeing their homes with their gems sewn into the hems of their clothing. De Beers did not invent the idea of portable commodities! I think that idea was around a long time before that Gems are a safe and easy way to keep one's wealth literally at one's finger tips.

The tradition of bestowing wealth upon one's chosen bride is also not new. For millenia, suitors have provided gifts and wealth to their intended bride as a promise to actually marry her (like a deposit on a house ), and as a tangible illustration of their ability to care for her and the children she will bare. Sometimes it was sheep, or textiles, or land, or gems, or gold... but the intention is the same in each case. I don't think that historical meaning becomes obsolete or lost just because modern women have access to their own wealth now. Reflecting this long history, many women on this board and others feel on a deep level that their engagement ring reflects their husband's VALUATION of their worth, if not explicitly, then implicitly. It's hard to shake a millenia of tradition just because you want to

I am a very modern woman, and yet for me, the tradition of the engagement ring is still important. For me, wearing a diamond engagement ring links me to past generations of women in a meaningful way. And I also like that I could sew it into my clothing in the event of a catastrophe

It's fine and dandy to opt out of a cultural tradition, but that does not always mean the tradition is meaningless hoopla. Nor does it mean you can convince someone else to share your opinion.

The moral? Talk to your intended fiance and see what SHE thinks. Then do what is important to her. That's a recipe for a good marriage - -the person most affected by the decision should make the decision. Although you are paying the money now and may feel that you are most affected, in fact, wearing or not wearing and engagement ring has a much bigger impact on your future fiance because the cultural weight and meaning of the ring reflects on her. So the decision should be hers.

 

[Karl_K]

Granted, this is wholesale-level. I grant you that this price-increase is not going full-force down to the consumer-level. Retailers are cutting margins to the ridiculous, and only part of the true underlying cost-increase is carried down to the consumer. But that is not tenable.

Hi Paul I do not disagree with what you said and I did research before I posted it to see if it was still going on.
We are looking at it from different ends of the market.
You look at it from rough to consumer and I look at the reverse consumer to rough.
The view changes depending on where you look at it from.


Smalls haven't hit the wall yet that larger stones have but they will.
The idea that the price of something will always go up has made a lot of people broke.
I stand by my opinion that China demand is being hyped up to justify price increases on the rough level.
Now is that a fact? no it is my opinion after research.

 

[teobdl]

FWIW, Goldman sees growth in demand continuing to outpace growth in supply, and this growth in demand is mostly attributed to the East (China and India).

DD--Re: owning diamonds as a portable commodity in case of financial catastrophe-- Not a good reason for purchasing gems unless you are already connected to buyers and can liquidate quickly at a high % of the purchase price... in the midst of a crisis.

 

[LightBright]

It sounds like your heart is not in this game. If your diamond budget is $12k, your nice setting will likely cost $3k and there will be taxes and insurance. Buying a diamond engagement ring is a VERY expensive proposition if you stick with the sound advice found on Pricescope.

Before you go into debt spending $15k on a diamond engagement ring that depresses you, please slow down. First, have you talked to your future wife about what she wants? Most women DO want a diamond because they are beautiful, but some love the idea of a color stone surrounded by diamonds. Does she even know what she wants? Is she someone that will want an upgrade in a few years? Is she someone who likes the best of the best? Is she someone who loves a bargain? Does she love high color or low color diamonds? Would she be thrilled with an antique piece?

If you come on Pricescope looking for advice on diamonds, you will very likely be coached on how to buy a diamond that is properly priced, good quality, that has been GIA or AGS certified and has no strange surprises. For this you will pay a premium.

You will pay a premium for size, cut, clarity, color, new or used. The diamond industry is built on promoting certain characteristics over others and assigning a value that may not align with your values. So where you can save money is to pick one or more of these categories and go down in so called "quality" to get more quality in another area.

For example, I picked COLOR and CUT and went down in other areas. My engagement ring was a very white small stone that was 100% eye clean (but mediocre clarity grade) and very well cut. I paid very little for this stone and it is GORGEOUS.

Then recently, I decided to go bigger and with the help of friends found a 1.8 carat Old Cut (K color) diamond in an antique setting on EBay. I paid just a little more than my original diamond, and it included an antique setting. This is a seriously beautiful stone that was very affordable.

I guess what I'm saying is that I truly understand your pain in terms of cost. But I do think there are many creative ways to handle these costs and not buy into the industry hype if your heart and particularly if her heart is not in this very prescribed game.

However, if she wants the traditional route, and if you can identify exactly what your future wife wants, and if you invest the money in a high quality, special piece now, which satisfies her vision of an engagement ring, 1) she will LOVE IT and feel that you respect her enough to really UNDERSTAND her tastes and 2) you may end up saving lots of money in the future from her trying to "fix" a purchase that she didn't LOVE up front.

Good luck and keep us posted!

 

[msop04]

Gems have long been a valued commodity, they were just not tied to marriage per se and diamonds were not always the most valuable gem. But, they are very small and portable whereas big bars of gold or wads of cash are not portable (or meaningful in many circumstances, like war, or bank destabilization). To many people, gems or gold is THE only way to "store" assets over time. Think of historical (and modern) accounts of persecuted populations fleeing their homes with their gems sewn into the hems of their clothing. De Beers did not invent the idea of portable commodities! I think that idea was around a long time before that Gems are a safe and easy way to keep one's wealth literally at one's finger tips.

The tradition of bestowing wealth upon one's chosen bride is also not new. For millenia, suitors have provided gifts and wealth to their intended bride as a promise to actually marry her (like a deposit on a house ), and as a tangible illustration of their ability to care for her and the children she will bare. Sometimes it was sheep, or textiles, or land, or gems, or gold... but the intention is the same in each case. I don't think that historical meaning becomes obsolete or lost just because modern women have access to their own wealth now. Reflecting this long history, many women on this board and others feel on a deep level that their engagement ring reflects their husband's VALUATION of their worth, if not explicitly, then implicitly. It's hard to shake a millenia of tradition just because you want to

I am a very modern woman, and yet for me, the tradition of the engagement ring is still important. For me, wearing a diamond engagement ring links me to past generations of women in a meaningful way. And I also like that I could sew it into my clothing in the event of a catastrophe

It's fine and dandy to opt out of a cultural tradition, but that does not always mean the tradition is meaningless hoopla. Nor does it mean you can convince someone else to share your opinion.

The moral? Talk to your intended fiance and see what SHE thinks. Then do what is important to her. That's a recipe for a good marriage - -the person most affected by the decision should make the decision. Although you are paying the money now and may feel that you are most affected, in fact, wearing or not wearing and engagement ring has a much bigger impact on your future fiance because the cultural weight and meaning of the ring reflects on her. So the decision should be hers.

Very good explanation and advice, DreamerD!

 

[SKYSERFIN]

Hey everyone sorry for the misrepresentation of my post. Didn't mean any disrespect just wanted to get more info from all the experts here. Really appreciate all the guidance.

 

[WinkHPD]

Hey everyone sorry for the misrepresentation of my post. Didn't mean any disrespect just wanted to get more info from all the experts here. Really appreciate all the guidance.

We had a great conversation as you made us think. Welcome to our world. I hope you are finding what you need.

Wink

 

[WinkHPD]

Talking of price predictions:
The rough sellers have been trying to push up prices for months but the price of polished hasn't kept pace there is a lot of resistance to the increases and unlike in the past and De Beers doesn't have the power to force them through and the alliances are showing signs of breaking up.
An investigation into collusion by the rough producers would be very interesting.
What I see is a power shift from the rough producers to the overall market and they are fighting it.
If the rough producers win expect some large price increases.

It will be interesting to see how it all plays out.

I kind of wish I could start a new thread with your post and then post this comment from Polished Prices dot com that I just received so that we could look at the market as it currently is.

Quote:

Index sets 20-month high

A strong finish at the end of March saw the overall PolishedPrices index reach above 150 for the first time since July 2012.
The index ended the month at 148.5, up 3.8% from the end of February. The average for March was 145.6, 0.1% higher than February and 4.7% above the average for March 2013. So far this year the index has gained 5.3%

The last two weeks in March have been exceptionally strong, with the index adding 5.6%, between the 19th and the 30th March.
In our forecast given at the start of the year, we were expecting the rate of increase in prices to increase from now on, but the recent increases have taken prices outside the expected range, so it remains to be seen if they can be sustained at current levels over the short term.

By Richard Platt.

End Quote

I used Quote, End Quote to indicate the part that I quoted and included the author's name to give full attribution.

Wink

 

[Karl_K]

No problem with starting a new thread Wink I will start it.

 

[Texas Leaguer]

Just a point to add to the discussion so far, to Neil's list of value aspects, and other posters' comments about what makes diamond so special to so many people. Because diamond is beautiful, durable, and transportable, there is demand. Like everything else, the price is driven by the relationship between supply and demand. Is supply manipulated to some extent? Sure it is. Again, pretty much like everything else. A producer or seller will not 'supply' a product if they cannot get what they consider a viable price for it. Diamond mines, (as well as oil wells and soybean fields) are sometimes shut down because the cost of producing is not always justified by the demand in the market. Better to leave the resource in the ground until the market improves. Sellers will turn down offers and hold inventory rather than sell it an unsustainable prices, if they are in a position to do so. This is not so much market manipulation as it is simply business 101.

But the notion that gem diamond is so abundant that there are huge quantities of rough diamonds stored in salt domes somewhere by entities creating false markets, is fictional. First, the geologic conditions beneath the crust of the earth have to be just right for diamond formation. Then they have to be transported to the surface through rare volcanic chimneys where they can be mined. Most of these pipes are ancient and buried or obscured by vegetation or ice, so they first have to be discovered. Then they have to be tested and finally they have to be put into production at the cost of hundreds of millions of dollars. And they may or not produce viable yields. Tons of earth must be moved for even fragments of diamond crystals to be recovered.

One of the most interesting books I have ever read about the gem business is Matthew Hart's book called "Diamond- Journey into the Heart of an Obsession". I highly recommend it for anyone who loves diamonds. The most interesting aspect of the book to me was his accounts of prospecting for diamond. From gem hunters scouring the African jungle for indicator minerals brought up in termite mounds, to overflights of the frozen Canadian wilderness in planes equipped with electronics to pick up magnetic signatures that indicate the possible location of a kimberlite pipe. Yes, there are a few places on earth where diamonds are found in alluvial gravels weathered out by erosion, but the vast majority of diamond in the world is not just laying about!