Is it a good time to buy diamonds?

Is it a good time to buy diamonds?

I rarely make predictions like this, but I’m going to take a flyer. Yes, boys and girls, it’s a good time to buy diamonds.

Is it a good time to buy diamonds?

 

Demand for diamonds continues to rise, especially on higher-end goods. The handwringers point out that demand in China is growing slower than expected, that the kleptocrats in India keep messing thing up, and that the zillionaires in Dubai are having a bad year, and Americans are getting married older, or not at all, but don’t let that confuse you. The ‘bridal tradition’ is on the march around the world and the diamond business is about brides. The percentage of worldwide weddings that involve at least one diamond is growing, it’s growing fast, and there’s no end in sight.

The supply chain is in the tank. Profits from manufacturers, the folks who are normally called the cutters, are zero for the whole sector. They’re literally only in businesses to keep their staffs employed and to wait it out until things improve. There is no more savings to come out of them. Prices and margins here will rise. They must.

Retailers are making their money on mountings, not diamonds. This trend has been going on for a decade or so, but it’s become almost laughable. There’s more profit on the table for selling and setting up a $1000 ring than in selling a $10,000 diamond to go in it. Even Blue Nile, the Internet diamond house that survived the dotcom crash, has come around. They’re pushing mountings, made by captive manufacturers and sold exclusively through their sales channel. Like the above, there is no more discount to be squeezed out with the Internet. One of the major Internet diamond retailers just collapsed, not for lack of clients but over too low a margins. Even mighty Amazon is avoiding the business.  It’s one of the few areas of e-commerce where they AREN’T the dominant player.

The supply chain is shrinking. Part of the reason for the rise of the online diamond houses is that the ‘traditional’ diamond channel involves so many steps. Miners, shippers, cutters, labs, wholesalers, more wholesalers, retailers, designers, setters, taxmen, etc. There’s been a lot of room to add efficiencies. There’s still some of that, but those mid-chain people are dying off. Giant factories in India are directly retailing through their own channels. They employ setters, designers, appraisers, web developers et.al. It’s not yet totally mine to finger in most cases, but it’s coming. Those mid-level wholesalers are dying off or becoming retailers themselves. The competitive cutting houses are being sucked up because they can’t afford to wait it out. The big dogs are getting bigger, and the little ones are selling out or shutting down.

Mining is a terrible business at the moment. One of the worst. Diamonds are actually one of the few bright points in the industry, but mining is dominated by gigantic companies that are imploding. Anglo American, Rio Tinto, and BHP Billiton, 3 of the top 4 diamond mining companies, have lost over $50 Billion dollars in the last 5 years (#4 is Alrosa, which is owned by the government of Russia who doesn’t’ publish their data). The problems are with other things, mostly iron, but these people are looking for money anywhere they can find it. Forget discounting here. Diamonds are propping up some billion-dollar companies and some trillion dollar governments. There are no small players.

Synthetics are carving out their own space. The press has been waiting with bated breath for the rise of synthetics and the collapse of the diamond world because of it. It’s here, but nothing has collapsed, at least not over this. People buy synthetics for their own merits and the frauds, although they do exist, are mostly on the other end of the spectrum, selling fakes as synthetics, not selling synthetics as natural. If anything, it’s just given fuel to the rise of the giant labs like GIA and IGI. Any diamond over a thousand dollars or so comes with a lab inspection, and this is one of the things they’re looking for. Rather like other synthetic gems, the threat we’ve been seeing has just turned into another sales channel. A channel that doesn’t seem to be doing very well by the way. The threat that remains from the growers is in melee. For friends not in the industry, that’s the word for the tiny little stones on your watch face and tennis bracelets. There’re no labs here, and the watch manufacturers are scared of the upcoming scandal when someone slips a synthetic into the supply chain and then someone sues over it, possibly years later. My coffee is too hot AND my tennis bracelet has 2 synthetic diamonds in it! The horror. I don’t mean to be unsympathetic, that’s a valid worry and you can bet it’s going to happen. Money is going to be lost and reputations are going to be damaged over this, but people will get over it.

That doesn’t mean every diamond deal is good.  Yes, it’s a good time, but it’s more important than ever to use due diligence when shopping.  Get an appropriate appraisal.  Hire a skilled appraiser as part of your shopping process.  Use a credit card.  Get lab paperwork. Trust but verify.