Will Diamonds Hold Their Magic, Mystique, and Value?

We've known for years that diamonds aren't rare enough to be super-expensive, but given the way the DeBeers cartel has, over the decades, successfully employed rationing and romance, diamond demand and diamond prices have remained high ... so far.

Jewelers, sitting on stones purchased at top prices, may not feel comfortable forever, and yet another segment of the retail economy could be imperiled by Russia's announcement of a big diamond sale.

Russia produces a lot of diamonds which it once marketed through the DeBeers cartel, but a ruling by the World Court changed all that with its opinion that such marketing stifled competitive pricing.

Two years ago, the US led global trade sanctions against Russia during the Ukraine crisis. Since then Russian inventories of domestically-produced diamonds have swollen. At the same time the value of the Ruble has shrunk. We have to assume that Russia will do what's good for the Russian economy, so, in a move that's likely to be repeated, Russia recently announced that some of its diamonds, which have been kept off the market, are being sold at auction. We know Russia has arranged long-term sales of petroleum products to China, so, the big question is, "How far will Russia go in finding new markets--perhaps lower-priced ones--for its high-quality diamonds?"

The industry outside Russia professes not to be concerned about the auction of 167,000 carats of oversupply because only Russians can bid on the diamonds. These diamonds may not be of exceptional size or quality, but one has to think Russian inventories contain bigger and better stones, and that ways will be explored to bring these stones onto the global market. But, if it happens, can it happen without undercutting the mystique, magic and up-scale price structure cultivated so profitably and so long by DeBeers? Would DeBeers allow that to happen if eventually it meant that every diamond--whether privately owned or in industry inventories--would be re-valued?

If it were up to me I would keep diamond prices very high, based on my experience as a diamond miner. When I was growing up, my home state of Arkansas was called "The Diamond State" because the nation's only diamond mine was located outside Murfreesboro, in the southwest quadrant of the state. So, years ago, with diamond wealth sparkling in my mind, I drove to the mine, bought a ticket, rented a shovel, and began digging in an abandoned cotton patch.

The July sun was scorching. The perspiration was profuse. The dirt was dry and hard. After two hours no diamonds has been uncovered, so, I called it a day. Ever since, my position has been that diamonds at prevailing prices, and considering the hard labor involved--aren't nearly expensive enough. If diamond prices remain high I may resume mining, because every few months someone makes headlines by digging up an Arkansas rock worth a small fortune. But, if I ever go back to the mines, it will be with a wide-brim hat, towel, gloves, and a  case of cold water...on a cool, breezy day.

If you paid top dollar for a diamond, expecting it to not only retain its value, but perhaps to even appreciate forever, you may want to re-examine that assumption periodically. US sanctions, designed to inflict economic pain on Russia, could conceivably boomerang to devalue an asset that almost every US family has considered to be eternally solid and safe. Those who've bought diamonds, thinking their investment was as "good as gold," may want to follow the diamond market more closely. Some might even want to consider a sale of their own.