Not So Precious

I love diamonds. Perhaps I've been conditioned by society (and by society I mean jewelry stores and De Beers) since a young age, or maybe it's because diamond is my birth stone, but I've always loved the look of a beautiful sparkling diamond. Regardless of cut, size, quality, shape...I think all diamonds have a unique beauty.

My original wedding / engagement ring (which was stolen a couple of years ago) was imperfect but I loved it so much...I knew where the "imperfections" were...they were a couple of black specks and I could see them if I focused very carefully and turned the ring at the right angle. It made the stone unique to me.

But diamonds are truly one of those commodities that is tightly controlled and their prices are radically inflated by tight control of supply.

I did not realize that Russia had such a large hold on supply. It appears that the Russian company (90% owned by the government), Alrosa, has surpassed DeBeers as the largest producer of diamond rough.

As a result, Russia has become the arbiter of global diamond prices. Its decisions on production and sales will determine the value of diamonds on rings and in jewelry stores for years to come, in one of the most surprising consequences of this recession.

Diamonds are not particularly rare and therefore in order to create rarity, they are stockpiled and kept out of the market. They are really nothing more than a pretty (and very hard) piece of rock (carbon actually) and are found all over the world.

Until last year, De Beers produced about 40 percent of the global rough stone supply, and Alrosa 25 percent. But De Beers, which is prohibited under its European Union antitrust agreement from stockpiling, closed mines in response to the glut in rough stones. Russia is loath to do that, as authorities in Moscow, gravely concerned about potential unrest by disgruntled unemployed workers, try to keep workers on the payroll.

So De Beers has closed down mines because they already have too much rough. And yet the price of diamonds is still quite high in comparison to other common stones. It's all a game of illusion.

“We have to tell people that diamonds are valuable,” he said. “We are trying to maintain the price, just as De Beers did, as all diamond producing countries do. But what we are doing is selling an illusion,” meaning a product with no utility and a price that depends on the continued sense of scarcity where there is none.

There are quite a few stones that are actually truly more rare, and therefore more expensive, than diamonds. But somehow diamonds capture our attention most when it comes to the perception of "precious".

I wonder if this will ever change.