I have heard that diamond prices are held at an artificially high price by the De Beers company and that many Africans live a life of despair and poverty while mining diamonds. What is the truth about the diamond market? Most important, can I use it as an excuse for not buying diamond gifts for my wife? –Gregg Barr, Lenexa, Kansas
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More than 20 years ago journalist Edward Jay Epstein wrote the definitive expose of the diamond business, initially published in the Atlantic Monthly in 1982 and subsequently as a book, The Rise and Fall of Diamonds. Epstein, it must be said, is a conspiracy buff, but his research on diamonds is pretty credible. His central contention is that diamonds have little inherent value; their perennially high price is solely a function of clever promotion and ruthless manipulation of the market. You ask: Isn’t that true of any high-value product? Nope. Take gold, a true commodity in the sense that it’s fungible, as the economists say–like quantities of gold are freely interchangeable. Gold’s purity can be readily assayed and it’s indestructible for practical purposes, making it a reliable store of value. Even now that the world has abandoned the gold standard, gold’s price has held up well on the open market.
Throughout all this De Beers has successfully fended off threats due to political upheaval, competing producers, and even the U.S. Justice Department (the firm recently paid a $10 million fine to settle an antitrust case). The big challenge today is synthetic diamonds. In a widely noted article last fall, Wired magazine reported on two start-up firms, one in Florida and the other in Boston, that had begun manufacturing gem-quality artificial diamonds. Synthetic diamonds have been available since the 1950s and are commonly used in industrial abrasives, but till now have made little headway in the gem market due to prohibitive manufacturing expense. Supposedly the new artificial diamonds, particularly those made by chemical vapor deposition, are both cheap to produce and, unlike knockoffs such as cubic zirconium, virtually indistinguishable from natural diamonds even in the lab.
