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ultimate threat to the new diamond cartel is that the public
will begin to sell its hoard of diamonds, collapsing "the
overhang." onto an already fragile market. The Russian
monopoly which is now taking over from De Beers must confront
that, except for those few stones that have been permanently
lost, every diamond that has been found and cut into a gem
since the beginning of time still exists today. This enormous
inventory, which overhangs the market, is literally in -
or on - the public's hands. Despite the myth of rareness,
some hundred million women in America alone wear diamonds,
while millions of other people keep them in safe deposit
boxes as family heirlooms. Indeed, it is estimated that
the public holds more than 500 million carats of gem diamonds,
which is more than 50 times the number of gem diamonds produced
by the diamond cartel in any given year. The moment a significant
portion of the public begins selling diamonds from this
prodigious inventory, the diamond cartel, whether run by
De Beers or Russia, would be unable to sustain the price
of diamonds, or maintain the illusion that they are such
a rare stone that their value is, as the ad slogan claims,
"forever."
As Harry Oppenheimer, who headed the old cartel for more
than a quarter of a century, pointed out, "wide fluctuations
in price, which have, rightly or wrongly, been accepted
as normal in the case of most raw materials, would be destructive
of public confidence in the case of a pure luxury such as
gem diamonds, of which large stocks are held in the form
of jewelry by the general public."
The genius of the De Beers cartel was creating this "confidence"
in the myth that the value of diamonds was eternal. In developing
a strategy for De Beers in 1952, the advertising agency
N.W. Ayer noted in a report to De Beers: "Diamonds
do not wear out and are not consumed. New diamonds add to
the existing supply in trade channels and in the possession
of the public. In our opinion old diamonds are in 'safe
hands' only when widely dispersed and held by individuals
as cherished possessions valued far above their market price."
In other words, for the diamond illusion to survive, the
public must be psychologically inhibited from ever parting
with their diamonds. The advertising agency's basic assignment
was to make women value diamonds as permanent possessions,
not for their actual worth on the market. It set out to
accomplish this task by attempting through subtly designed
advertisements to foster a sentimental attachment to diamonds
that would make it difficult for a woman to give them up.
Women were induced to think of diamonds as their "best
friends."
This conditioning could not be attained solely by magazine
advertisements. The diamond-holding public, which included
individuals who inherited diamonds, had to remain convinced
that the gems retained their monetary value. If they attempted
to take advantage of changing prices, the retail market
would be chaotic.
Even during the Great Depression of the 1930s, there was
only a limited overhang, since the mass-marketing of diamonds
had begun only a single generation before the crash. So
even though demand for diamonds almost completely abated,
De Beers, by shuttering all its mines and borrowing money
to buy up the production of the small number of independent
mines that still existed, was able to weather the crisis.
Today, however, with many generations of the diamonds it
mass-marketed overhanging the market, and most of global
diamond production in independent hands, it no longer is
in a position to bring supply and demand into balance. Adding
to this precarious situation, diamond cutters, manufacturers
and dealers, have billions of dollars worth of diamonds
in the pipeline that stretched from the cutting factories
in Israel, Belgium, and India to wholesalers in New York
that are financed on bank credit. Unless market conditions
improve, these diamonds will have to be dumped on the market.
Further intensifying the downward spiral. Uncut diamond
prices have fallen by more than 60 percent since mid-2008.
Even if Russia, the new overlord of the cartel, stockpiles
all the diamonds that come out of its Siberian mines, as
it is reported to be now doing, it still has deal with the
terrifying prospect of the huge overhang crashing into the
market. As a top adviser to the Russian Diamond monopoly
recently told the New York Times, “We have to tell
people that diamonds are valuable...We are trying to maintain
the price, just as De Beers did, But what we are doing is
selling an illusion.” But what as the current recession
deepens, it cannot maintain the price in the way that De
Beers so successfully did for over a century, and the brilliantly
nurtured illusion that the value of the glittering stones
kept on fingers, in jewel boxes, and in vaults is eternal?
Without that illusion. overhang will come pouring into the
market, and diamonds may become just another semi-precious
trinket.
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