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Arguments On Diamond High Prices Are Sometimes True

2006: Arguments on Diamond High Prices Represent De Beers’ Hold on Price Decision

May 2006

Are diamond prices at the right level? On the one hand, dealers are complaining that prices are too high, particularly in the "bread and butter" goods, given the current quietness of the current market. There is significant price resistance at all levels of the trade. And now there are reports that De Beers sightholders, after years of enjoying relatively cheap rough, are complaining that they are paying too much, given the price increase earlier this year and the imposition of the surcharge for what De Beers calls "value-added services." (Although Nicky Oppenheimer says De Beers isn't likely to raise prices in the near future; see the story below.)

On the other hand, one could make the argument that diamond prices are too low. Look at what's happened to other commodities:

Gold is currently trading at its highest level in 25 years. At press time, it hit $660. Gold prices have more than doubled in the past three years and have jumped by 25 percent so far in 2006. And a recent Merrill Lynch report expects the price to continue to rise over the next three years.

Platinum prices are also hitting historic highs. Last week, it reached $1,149.75 per ounce, a 17% jump since the beginning of the year.

Silver is now at a 23-year high.

Even copper hit an all-time record price last month.

And don't even get us started on the price of oil, real estate, even art (last week, some Picassos went for a record price.)

The question of course is: Why hasn't all this spread to diamonds?

The question is particularly intriguing since in the 1970s the price of gold and diamonds basically rose in tandem. But why not this time?

Here are our guesses:

In the 1970s, the investment companies said that diamonds were a safe commodity because De Beers controlled the market and could act as a floor to any price drops. That turned out not to be true, but maybe investors are a little more skittish now that the diamond "Big Daddy" won't be supporting the price.

There are investors going into the diamond market … but they seem to be mostly going into the FANCY colored diamond market. Prices in this end of the market have gone up quite up a bit.

In a way, we should probably be happy this little investment mania has not spread to diamonds. Already the price of jewelry is rising precipitously because of the increases in gold and platinum; we don't need it to raise more. Many analysts are already worried the prices of gold, silver, etc., are seriously out of whack. And everyone who lived through the 1970s knows what can happen when prices are based on investor interest, not on consumer demand.

Perhaps diamond jewelry is best when it is sold to people who love each other — rather than to people who just love to make money.


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