What if diamonds weren’t valuable?

Until 1870, diamonds were extremely rare., it was unusual to see them except in the hands of sovereigns. The wealthy used to settle for other precious and semi-precious stones for their jewelry. But after some finds in 1867, a large diamond deposit was discovered in 1870 in Kimberly, South Africa. The large amount of diamonds that were extracted from there caused the price of diamonds to fall, so that investors in the mines saw their investments worth less and less. In 1888, Cecil Rhodes founded the DeBeers diamond by merging his company with another. And the whole world changed. Rhodes became so powerful that there was a region of Africa named after him, Rhodesia (now Zambia and Zimbabwe).

The new company (named DeBeers after two Dutch settlers) controlled virtually the entire world supply of diamonds. With which he could sell them at the price that was considered appropriate. However, they suffered a strong danger, and that is that since diamonds were valuable, any mine that was found would be exploited. DeBeers has spent the entire 20th century working on the supply of diamonds, but also on the demand. DeBeers normally distributed its diamonds through the Central Selling Organization, which ten times a year sold the diamonds to select buyers in London. These in turn would be resold in NY, Antwerp or Tel-Aviv.

Protecting a monopoly

Some scientists claim that on Jupiter and Saturn it rains ten million tons of diamonds a year. These stones end up melting into a hot liquid sea on the planets themselves. However, if these planets have plenty of diamonds, on earth it seems that they are not extraordinarily scarce on the earth’s crust. That was the biggest risk DeBeers had, diamonds were valuable, so any deposit was interesting to be exploited. And if more diamonds were put on the market, they would go down in price.

In 1902 another mine was discovered in South Africa with diamond levels equivalent to all DeBeers mines. Its owners were initially not very interested in joining DeBeers, although this changed a few years later.

In 1957, diamond mines were discovered in Siberia, which although they had smaller diamonds than African ones, could have lowered the price. DeBeers was smart and able to develop an agreement with the Soviet Union and the communistsso they agreed to buy their entire production and thus make them participate in part of the cartel.

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In the 1970s, due to Israeli hyperinflation, many diamonds were used in this country as collateral for loans. Many dealers in this country began hoarding diamonds with the intention of reselling them and drove up diamond prices. That worried DeBeers, as they might lower the price. (DeBeers has always tried to keep diamonds from being resold.)

In DeBeers to expel speculators, he prepared a quantity of diamonds that could be sold at any time (making speculators see that diamonds could be a risky investment), on the other hand he reduced the offer to Israeli representatives by 20% . In the end he ended up expelling the Israelis from the diamond union and many dealers lost access to the circle of trust of the CSO. In this decade, one in four workers in the Israeli diamond industry ended up losing their job. These moves to protect his monopoly have never come easy to DeBeers, not the first time he has had to buy back large quantities of diamonds simply to keep the price up.

Later, deposits of colored diamonds were discovered in Australia (a diamond is not necessarily transparent). By selling them through different marketing, it didn’t conflict with DeBeers, which never had colored diamonds as a major part of its strategy. DeBeers responded by flooding the market with colored diamonds in the 1990s.

Also in the 1990s, due to the discovery of new diamond deposits in Canada, DeBeers set out to capture the maximum of this market, since some estimates showed that his cartel would end. Although DeBeers mines Canadian diamonds, it has also made arrangements with mining company Broken Hill Proprietary to sell diamonds through its CSO starting in 1999.

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However, if DeBeers has come to control between 85 and 90% of the world’s diamond production, that has changed a lot in recent years. Currently, due to competition from new deposits, it is estimated that it controls between 30 and 40% of world production. Producers from other locations in the world such as Australia, Canada or Russia, they don’t want to go through the hands of DeBeers anymore.

How did DeBeers manage to escape US antitrust laws? Among other reasons because for decades he had no presence in the US, only through his advertising agency. Because If DeBeers has been a master at dominating supply, it has also been a master at manipulating demand.

a diamond is forever

A diamond is forever was chosen as the advertising slogan of the 20th century. Its simplicity is perfect. On the one hand it helped DeBeers to increase its sales, on the other hand so that diamond buyers did not feel interested in selling them but in always keeping them and reducing the diamond market. In the 1930s, the US engagement ring market was in decline, until the campaigns launched by DeBeers with its advertising agency NW Ayer began in 1938.

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At that time, young women were interested in items such as a house, a washing machine or a car, buying a diamond was something like throwing money away. The NW Ayer advertising agency was tasked with changing this, and focused on the marriage part.

Since 1938 the press has not stopped telling us about the characteristics of the diamonds (size, color and size) given to royalty, millionaires, politicians and Hollywood actors. In addition, there were advertisements for “A Diamond is Forever”, the slogan created by Frances Gerety of the aforementioned agency in 1947. These were signed in small by DeBeers, although DeBeers until recently cared little that their brand was known, what mattered to him was that there was a demand for diamonds.

In addition, there were advertisements that compared diamonds to works of art by Dalí or Picasso. Starting in the 1950s, jewelry began to be lent to attendees of the Kentucky Derby and the Oscars in Hollywood. By 1951 sales had increased by 55%.

Do we remember how in 1957 DeBeers reached an agreement with the Soviet Union to buy their entire production, which was also smaller? demand was stimulated lowering the size of diamonds shown in advertising from one carat to a quarter caratin addition to inventing the eternity ring, which combines several small diamonds.

In the 1980s, to encourage demand, the arbitrary rule was invented that A man must have spent two months’ salary on his fiancée’s ring. something that is usually counted as if it were an immovable rule. As early as the early 2000s, advertising began targeting single and even married women, showing how diamonds could be bought for themselves.

It is estimated that in the US in 1951 eight out of ten women who marry have received one or more diamonds as a gift. Today it is about 75%. The US engagement ring market in 2012 was 7,000 million dollars.

The US was not the only country where DeBeers tried to increase the demand for diamonds, but they started campaigns in countries such as Japan, Brazil, and Germany from the mid-1960s. Japan was possibly one of the countries where it was most successful to popularize diamonds, showing them as part of the Western success in modernizing the country. It was not as successful on the other hand in markets such as Brazil, Germany, Austria or Italy.

In recent years DeBeers has begun to launch its own jewelry stores, using its brand that had been associated with the name of diamonds for decades, many of these DeBeers jewelry stores are located in China, this country in 2009 surpassed Japan as the second largest importer of diamonds .

Diamonds are not as valuable as we often believe, have you tried selling a diamond?

The question is are diamonds valuable? The value we give it by scarcity. Although some scientists believe that Beneath the surface of the earth there could be billions of tons of diamonds..

In the 1970s and after, some publications decided to test whether the public perception of diamonds was true, something that an article in The Atlantic of 1982, Have you tried selling a diamond? In this world of gemology they discovered how in an investigation carried out by a consumer publication in London (Money Which) in the 70s when there was strong inflation, it gave a return of 3% to a buyer after keeping it for eight years.

In 1976 a Dutch consumer association tried to test by buying a 1.42 carat diamond and selling it later. They offered it to twenty sellers, nineteen rejected it, the last one agreed to buy it at a fraction of what was paid.

There was also a scandal at the end of the 70s in the US in which, through unethical tactics, an attempt was made to sell diamonds to investors in the US, however when they decided to open them and see their value by experts, they determined that the diamonds were worth less of what they had bought them for.

In 1978 a wealthy lady had paid $100,000 for a necklace she had bought at Tiffany’s two years earlier to buy another piece of jewelry she liked. When she tried to resell it at Tiffany, she told them that they had a policy of not buying back the products they sold and recommended she go to another jeweler on Fifth Avenue. After half a dozen jewelers declined to offer her the $100,000 she had paid, she opted to keep it. Is this perhaps why a diamond is forever?

In recent years this is changing, the large jewelers are concerned that millennials, the youngest don’t buy diamonds and demand different products. Will we perhaps see the decline of diamonds in the coming years?

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