Valentine Day’s alert: Why diamonds are not a girl’s best friend

Vivek Kaul
“So let’s watch Gentlemen Prefer Blondes,” she said the other day.
Knowing her taste in movies did not go beyond Salman Khan beating up the baddies, I was left wondering why did she suddenly want to watch a nearly 60 year old Hollywood film? But then her statements could be disguised questions at times and so I thought its best not to cross question.
“Yes, sure why not,” I replied. “Let me get the DVD out.”
As I tried searching for the DVD, it suddenly occurred to me, why she wanted to watch the movie. The movie had the sexy Marilyn Monroe crooning “Diamond’s are a girl’s best friend” and Valentine’s Day was round the corner. So it was her idea of giving me a hint about the stone she badly wanted.
“Well, I really can’t find the DVD,” I said. “Guess you must have put it away when you cleaned a few weeks back.”
Not the one to give up so easily “let me look for it,” she said, and found the DVD in a few minutes.  And at that moment I thought it was best to get to the point straight away.
“So you really want that stone?” I asked.
“Don’t call it a stone, dear,” she replied. “It’s a crystal clear white diamond which is forever.”
“Guess you have been reading the entertainment supplements of newspapers a way too carefully over the last few days.”
“Yes I need to get my sales pitch right,” she replied rather blatantly.
“But you know na there are problems with diamonds?”
“What problems?”
“Well, for one they are very easy to buy but very difficult to sell.”
“Now since when did something which is easy to buy become a problem,” she replied, ignoring the more important part of the statement.
“Selling gold or silver is very easy. But most jewellers do not buy back diamonds that they did not sell. Also, even if they do decide to buy they offer around 75-85% of the prevailing price.”
“Oh, is that really the case?”
“Yes. You see ascertaining whether a diamond is really a diamond is not a cakewalk and is an expert’s job, especially in a day and age when artificial diamonds look as good as the real thing, if not better. This is something that cannot be easily ascertained as is the case with gold.”
“Hence, the easiest way for a jeweller to operate is to simply not buy anything that he hasn’t sold. At times jewellers agree to buy diamonds only if the customer agrees to buy a diamond of higher value from them.”
“So what is the problem?” she asked, not getting the point. “We can always buy a diamond of a higher value. I mean we need to move up in life.”
Now that was getting into the realm of the deeply philosophical. “Since when did moving up in life become equal to buying diamonds?” I wondered. But then I wasn’t the kind to give up so easily and decided to continue with more logic.
“Also, precious metals like gold and silver have a daily price, which is easily available. In fact these days most newspapers publish the daily price of gold/silver right under or around their mastheads. So when you buy gold/silver chances you are likely to be offered a price which is around that daily price,” I explained.
“Hmmm!” she said in a very non committal tone.
“Diamonds on the other hand have no standardised pricing, though there is something known as the Rapaport Report which is issued to jewellers. This puts out the price of diamonds based on 5Cs of a diamond i.e. carat, , clarity, colour, cost and cut. But this list is not available to an average customer. And more than that grading diamond becomes very difficult once they have been cut and set in jewellery. The best time to grade a diamond is when it’s lose.”
“But what is the point you are trying to make?” she burst out, sounding very hassled.
“Well, the point is you really don’t know what price you are going to get for a diamond when you try to sell it.”
“But who wants to sell it?”
“I’ll get back to that question. Let me explain to you how the diamond trade actually works.”
“Okay, go on,” she replied.
“The diamond trade has had a monopoly of a single South African company called De Beers. As Edward Epstein points out in his brilliant article Have You Ever Tried to Sell a Diamond? “De Beers took control of all aspects of the world diamond trade, it assumed many forms. In London, it operated under the innocuous name of the Diamond Trading Company. In Israel, it was known as “The Syndicate.” In Europe, it was called the “C.S.O.” — initials referring to the Central Selling Organisation, which was an arm of the Diamond Trading Company. And in black Africa, it disguised its South African origins under subsidiaries with names like Diamond Development Corporation and Mining Services, Inc. At its height — for most of this century — it not only either directly owned or controlled all the diamond mines in southern Africa but also owned diamond trading companies in England, Portugal, Israel, Belgium, Holland, and Switzerland.””
“So, what is your point?” she asked.
“As Barry J. Nalebuff and Adam M. Brandenburger write in their book Co-Opetiton “De Beers, a South African company, has a monopoly over the world’s diamond market. Most of the world’s diamond produce is sold through the Central Selling Organisation of De Beers.” The control that De Beers has over the diamond market has come down over the years, but it still remains reasonably strong.”
“De Beers operates like a cartel, deciding on the supply of diamonds every year and thus ensures that the market is not flooded with them. In recessionary years it cuts down the supply of diamonds dramatically thus ensuring that they don’t lose value. Diamonds over the years have been found in countries like Angola, Australia, Nambia and so on. In 1960s, huge diamond reserves were found in Siberia, making Russia a big supplier. Hence, diamonds are not scarce as they are made out to be,” I explained.
“Thanks for giving me a crash course on diamond economics,” she said saracastically, hoping that I stop.
But I was in no mood to. As Nalebuff  and Brandenburger point out “People value diamonds highly because they perceive them to be scarce. They’re not, but it’s the perception of scarcity that counts.”
“And let me come to the bit about not selling a diamond.”
“What about that?”
“A perception has been created over the years about diamonds being a permanent part of a couple’s life. As Epstein points out “Both women and men had to be made to perceive diamonds not as marketable precious stones but as an inseparable part of courtship and married life. To stabilize the market, De Beers had to endow these stones with a sentiment that would inhibit the public from ever reselling them. The illusion had to be created that diamonds were forever — “forever” in the sense that they should never be resold.” This perception has been created by a long running diamonds are forever advertising campaign.””
“Yes it’s a perception. But then have you ever heard the phrase perception is reality?
“Well, you can maintain that reality by buying fake diamonds i.e. man made diamonds. Essentially there are two kinds of fake diamonds: moissanite and cubic zirconia (CZ).  As Geoffrey Miller, a consumer behaviour expert, writes in Spent – Sex, Evolution and Consumer Behaviour “There is a rationale behind not spending the amount on real diamonds. Casual observers can’t tell them apart, nor can most pawnshop owners using the standard thermal conductivity tests for distinguishing CZ from diamond. Only experts may notice the subtle double refractions (birefringence) caused by Moissanite’s  hexagonal crystal structure.””
“Ah! Should I say I am impressed?”
“In fact the quality of so called fake diamonds has gone up dramatically gone up over the years. As Miller writes “The arms race between real and fake has also undercut the De-Beers diamond cartel for more than a century, as ever-better imitation diamonds have been developed: titanium dioxide (synthetic rutile) in the 1940s, synthetic strontium titanate (Fabulite) in the 1950s, yttrium aluminum garnet(YAG) in the 1960s, gadolinium gallium garnet (GCG) in the 1970s, cubic zirconia (CZ) in the 1980s, and silicon carbide (Moissanite) in the 1990s. CZ makes for an excellent imitation diamond…Moissanite, introduced in 1998, is even closer to diamond, with a similar hardness, density, and luster, yet more brilliance (a higher refraction index) and more “fire” (a higher dispersion index).””
“But fake at the end of the day is fake na. I won’t be able to carry it off with the same panache and confidence as the real thing,” she said.
“Hmmm!,” I replied, ignoring what she had just said. “Did you know that every time you buy a diamond you might be supporting a dictator or a rebel movement in Africa?”
“You  won’t stop! Will you,” she said in an exasperated tone.
“As Alan Beattie writes in False Economies – A Surprising Economic History of the World “Diamonds, in particular, are a near-perfect mineral with which to fund freelance rebel movements or alternate governments. They act almost like a global currency, being small and light and holding their value well. Despite the attempts of an international campaign, the Kimberly Process, to register their source, they are very hard to trace. The Sierra Leone civil war dragged on for a decade from 1991 after the Revolutionary United Front, the main rebel movement, gained control of diamond mines and used the wealth to fund their operations,””came a long wielding response from my side.
“Okay. Now that you have said so many things let me just say one thing. My sister’s husband is buying her a big diamond or stone as you call it, this Valentine’s Day. And I guess that makes it very clear that you will have to do the same,” she said, having the last laugh.
My mind went back to a line that the short story writer Hector Hugh Munro better known by his pen name Saki, once wrote “A woman and an elephant never forget an injury.” And with that I started making a mental calculation of what the damages would be.
The article originally appeared on on February 12, 2013
(Vivek Kaul is a writer. He can be reached at [email protected])