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Global Dash-For-Trash Escalates, 'Cheap' Diamonds Are A Chinese Girl's Best Friend

Tyler Durden's picture




 

While the global 'central-bank-inspired' wealth effect has benefited the uber-rich more than anyone else, it seems China's burgeoning middle class is more than happy to 'settle' for mediocrity in their fascination with luxury goods. As Bloomberg notes, the demand for diamonds is so heavy (and less discriminatory) that the price of lower-quality gems has surged as the price of high-quality 'flawless' diamonds has been very subdued. Since the US equity market lows in March 2009, the best quality diamonds have appreciated by around 5-7% whereas the lower-quality 'imperfect' stones have gained over 35%. As one Antwerp dealer noted, "the cultural taboo of having to buy the finest diamonds is broken," as the 'snob effect' has disappeared. China (retail sales up 18%) surpassed Japan in 2011 to become the biggest diamond consuming nation behind the US but it would appear we need to add a 5th 'C' to the famous diamond ranking" clarity, cut, color, carat, and cheapness. Simply put, another dealer noted, "people have latched on to the fact that when you buy a lower quality diamond, there is not always a big difference in appearance."

 

This chart shows performance from 03/06/09 for high- and low-quality diamond prices. We have smoothed the high-quality series as it was very noisy. Low quality is up around 37% in this time against around 5.7% for high-quality.


 

Via Bloomberg,

China’s burgeoning middle class is buying diamonds so quickly that the price of mass-market stones is rising faster around the world than for top-quality jewels affordable only to the super-rich.

 

...

 

“The Chinese consumer’s fascination with luxury goods has grown dramatically, along with their pockets,”

 

...

 

China’s market was initially fueled by a rich elite pursuing the best diamonds available. As the economy grew, a new wave of buyers emerged, opening the market to lower-quality stones that form the bedrock of U.S. and European demand.

 

“The cultural taboo of having to buy the finest diamond is broken,” said Anish Aggarwal, a partner at Antwerp, Belgium- based industry consulting firm Gemdax. “Really high-quality was the sacred thing. You needed to buy fine diamonds, there was a snob effect. That has just disappeared.”

 

...

 

China surpassed Japan in 2011 to become the biggest diamond consuming nation behind the U.S. Retail sales of diamond jewelry jumped 18 percent to $9.2 billion in 2011. Sales in India gained 17 percent.

 

...

 

Sales of discretionary goods in China will grow by a compounded annual rate of 13 percent between 2010 and 2020, as shoppers in the world’s largest economy after the U.S. become richer, McKinsey & Co. said in a report in March 2012.

 

Rising demand will put pressure on stretched supplies. Diamond producers have struggled to find new large mines to replace aging assets. Production at many of the biggest mines is falling as supplies of more accessible diamonds near the surface are depleted.

 

...

 

“Traditionally, it was quality, and in particular clarity, that was the most important consideration, now it’s much more of a mixed bag,” said Gemdax’s Aggarwal. “People have latched on to the fact that when you buy a lower quality diamond there is not always a big difference in appearance. There is however, a big difference in price.”


 

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Wed, 05/01/2013 - 23:26 | 3521171 Yen Cross
Yen Cross's picture

   Cheap diamonds work great for cutting tungsten bars...

Thu, 05/02/2013 - 00:35 | 3521325 prains
prains's picture

AnAnalogousAnus has a girlfriend? must be a blobbing up "friend". What's for dinner AnAn?

Thu, 05/02/2013 - 01:48 | 3521410 Richard Chesler
Richard Chesler's picture

"Diamonds are shiny beads"
"Tungsten is gold"
“War is peace.
Freedom is slavery.
Ignorance is strength.”

Forward.

Thu, 05/02/2013 - 01:57 | 3521420 strannick
strannick's picture

 

 

You can buy diamonds and depend on their value from DeBeers,

Or Real Estate and have government tax the crap out of it, 

or Gold

Thu, 05/02/2013 - 02:26 | 3521442 Kirk2NCC1701
Kirk2NCC1701's picture

Ah, De Beers, the diamond cartel!

The Fed of diamonds.

Thu, 05/02/2013 - 04:16 | 3521515 Sudden Debt
Sudden Debt's picture

De Beers has been suspected of rigging the diamond markets for decades now by rigging supply to keep prices high for diamonds.

And than there's the synthetic diamonds...

NOP, I'll never invest in that. For me it's just like crystal.

Thu, 05/02/2013 - 04:30 | 3521522 TheFourthStooge-ing
TheFourthStooge-ing's picture

prains asked:

AnAnalogousAnus has a girlfriend? must be a blobbing up "friend". What's for dinner AnAn?

One hint: he met her while fishing for river pigs.

Thu, 05/02/2013 - 10:40 | 3522332 prains
prains's picture

LOL....river pigs

Thu, 05/02/2013 - 00:36 | 3521326 Urban Roman
Urban Roman's picture

And I think they can crank out industrial diamonds now that are clear as water, in almost any size you might want. 

Used to be industrial diamonds were small and coal-black. 

Or cubic Boron Nitride ... almost indistinguishable from diamond. 

Thu, 05/02/2013 - 00:42 | 3521339 DoChenRollingBearing
DoChenRollingBearing's picture

Artificial diamonds are yet another risk in buying diamonds.  Among several others...

Thu, 05/02/2013 - 01:14 | 3521380 mkkby
mkkby's picture

My grandmother proudly wears a large cubic zirconium, and laughs about how jealous her girlfriends are. 

Diamonds aren't even a rare mineral.  The high price is artificial scarcity imposed by the cartels.  Totally for the sheeple.

Thu, 05/02/2013 - 01:36 | 3521401 Long_Xau
Long_Xau's picture

That's true, too. Without being well familiar with the topic, I was always wondering how did De Beers manage to control a monopoly in diamonds for so long... I was also wondering isn't it about time this monopoly position becomes history? Has it already happened?

Thu, 05/02/2013 - 01:28 | 3521392 Long_Xau
Long_Xau's picture

Yeah I was reading they were becoming better and better and cheaper and cheaper. Are you or anyone else here familiar with this topic?

To me it looks like diamonds are rapidly becoming obsolete as a store of value, is that right? I guess no type of natural diamond would be immune from eventually being matched and excelled by artificial ones.

Thu, 05/02/2013 - 00:41 | 3521338 DoChenRollingBearing
DoChenRollingBearing's picture

Actually, the Chinese buying cheap diamonds does not surprise me.  The article makes a very important observation for those of us "not in the business":

That the color and clarity differences between diamond grades are very difficult for non-experts to assess.  My first job out of college was as a Manager Trainee at a jewelry store.  If I had stayed there, I would have been eligible to get (free!) training to become a Gemologist.  Gemologists spend more time looking at diamonds then all the rest of gemstones put together.

I found in my own informal examinations of the various diamonds in the store that it was not easy, even at 10x, to see flaws and the slight yellow coloring so common in the medium and lower grades.

Wed, 05/01/2013 - 23:55 | 3521173 Major Major Major
Major Major Major's picture

Diamonds, bitchez 

 

Thu, 05/02/2013 - 00:06 | 3521261 Manthong
Manthong's picture

The good news is that you can find a cute young squeeze that will do anything to anybody nowadays.

The bad news is that the clap has gone total antibiotic resistant.

oops.

Thu, 05/02/2013 - 00:15 | 3521286 otto skorzeny
otto skorzeny's picture

diamonds are the most overrated gemstone you can buy- but that's the power of advertising on weak female minds. there was a good article in The Atlantic a few years ago about what a total racket the diamond biz is- kind of like the stock market-and guess which Chosen People controls both rackets ( it sure as fuck ain't the amish).

Thu, 05/02/2013 - 00:18 | 3521302 Major Major Major
Major Major Major's picture

Amish make their own hats

Thu, 05/02/2013 - 00:41 | 3521336 otto skorzeny
otto skorzeny's picture

maybe Nilla Ice will wear one in his new show where he lives with the Amish in Ohio- word to your mutha.

Thu, 05/02/2013 - 04:28 | 3521520 TheFourthStooge-ing
TheFourthStooge-ing's picture

Pimp dat buggy.

Thu, 05/02/2013 - 05:06 | 3521533 August
August's picture

Classic article.  Classic marketing program.  Classic cartel.  All things pass....

http://www.theatlantic.com/magazine/archive/1982/02/have-you-ever-tried-...

FWIW I well remember back in the fifth grade in the 1950's, the nice man in the dark gray suit who came to show 'n' tell all the boys and girls just how amazing, wonderful and special diamonds were.  Yes, diamonds were the Eighth Wonder of the World, boys and girls!  Absolutely brilliant stuff. Absolutely implacable.

Thu, 05/02/2013 - 06:26 | 3521580 Go Tribe
Go Tribe's picture

Was he wearing a funny looking hat?

Thu, 05/02/2013 - 06:36 | 3521586 Mototard at Large
Mototard at Large's picture

Sorry Otto.  It is not weak female minds that is the problem here.  It is weak male minds that buy the diamonds at the request of the female minds who - as you note - fall prey to the ads.

At the root of the problem (pun intended) is the male looking to impress the female with shiny stuff.  Diamonds, cars, houses, clothes, whatever.  Nothing has changed over the last few hundred thousand years. Men want sex and women want stuff for security in the future. 

As for myself, I blame it all on God.  He gave men two heads, but only enough blood  to run one at a time.

 

Wed, 05/01/2013 - 23:28 | 3521177 1C3-N1N3
1C3-N1N3's picture

Didn't the Soviets have a diamond meteor strike awhile back, worth upwards of a quadrillion bucks or so?

Space Diamondz, bitchez!

Thu, 05/02/2013 - 00:10 | 3521280 jonjon831983
jonjon831983's picture

Supposedly the meteor ones are classified as industrial diamonds.

 

Though, apparently diamond manufacturing can make high quality jewellery diamonds.

Wed, 05/01/2013 - 23:31 | 3521185 LetThemEatRand
LetThemEatRand's picture

They'll buy anything that isn't made in China.  Smart fuckers.

Wed, 05/01/2013 - 23:37 | 3521208 Dr. Engali
Dr. Engali's picture

Haha they think they're getting diamonds , but they're really getting cheap American cubic zirconia trinkets. The jokes on them.

Wed, 05/01/2013 - 23:44 | 3521229 LetThemEatRand
LetThemEatRand's picture

Payback's a bitch.

Wed, 05/01/2013 - 23:37 | 3521210 reader2010
reader2010's picture

A pussy is still a pussy in Shanghai no matter how you look at it. 

Wed, 05/01/2013 - 23:40 | 3521218 IridiumRebel
IridiumRebel's picture

Yu wan sucky sucky fo brue dimon?

Wed, 05/01/2013 - 23:43 | 3521227 infiniti
infiniti's picture

Seems like a rediculous analysis. Roll the start date forward a few months and their performance is almost identical.

Thu, 05/02/2013 - 00:21 | 3521306 Major Major Major
Major Major Major's picture

Seems redicruous... re-dick-ruuuous... reedicrous...

Wed, 05/01/2013 - 23:56 | 3521250 Gromit
Gromit's picture

Portability

Thu, 05/02/2013 - 00:44 | 3521341 DoChenRollingBearing
DoChenRollingBearing's picture

LOUSY resale value though (unless you are in the trade).  They only give you 30% of retail.

Thu, 05/02/2013 - 00:50 | 3521348 Manipuflation
Manipuflation's picture

Correct.

Thu, 05/02/2013 - 01:12 | 3521374 ebworthen
ebworthen's picture

Even as a trade-in, worse than trading in a car by 30% at least, and that is bad to begin with.

Couple of local shops would only give me $1K for a stone that 25 years ago cost $2,500.

Stones they were selling that were equivalent carat/grade were $3,000-$3,500.

Faghet abouot it!  I'll sell it myself to some young guy with stars in his eyes.

 

Thu, 05/02/2013 - 02:39 | 3521449 Kirk2NCC1701
Kirk2NCC1701's picture

The prices are managed across the industry by the diamond cartel, the way The Fed controls money supply and debt rates.

If you're not in the Club, you're an Outsider.

Thu, 05/02/2013 - 00:28 | 3521314 Manipuflation
Manipuflation's picture

Carbon investing?  On diamonds?  Good luck with that one.

Thu, 05/02/2013 - 00:45 | 3521343 Fuku Ben
Fuku Ben's picture

Untraceable. They could be used for money laundering or terrorism funding. Better crack down and require fingerprints and photo ID's, maybe even background checks and retina scans to buy them.

Wait, what am I saying this is an article on free Communist China not lock down Fascist America. Forward!

Thu, 05/02/2013 - 00:52 | 3521350 infiniti
infiniti's picture

Untraceable but also unsellable. How much would you pay for a 1-carat diamond of marginal quality (in exchange for drugs or gold or cash)? Probably 20 to 50% of the 'retail' price. It seems like a horrible way to store/transfer wealth. Gold may be much more difficult to smuggle or transfer, but at least it's a stable store of value. Cash is always preferable, though. Nothing facilitates an exchange of goods like a stack of Franklins.

Thu, 05/02/2013 - 00:58 | 3521357 22winmag
22winmag's picture

Franklins today... but tomorrow it may be small arms cartridges, cans of salmon, and pouches of stale tobacco that facilitate and motivate.

Thu, 05/02/2013 - 02:54 | 3521460 Kirk2NCC1701
Kirk2NCC1701's picture

There are De Beers (cartel) centers on each continent.

Doubt anyone else can use diamonds like BTC when buying and selling gold. But within that select group, "yes you can" swap gold for diamonds at both ends and keep the agreed prices.

Think of it as a private Bitcoin. Private to the cartel.

Thu, 05/02/2013 - 06:00 | 3521561 Urban Redneck
Urban Redneck's picture

Bank notes are traceable, which is why a crate in the trunk of gold "jewelry" or a satchel in the glove box of "stones for jewelry" plus a good Hawala broker are steps in the preferred Asian/African process for money laundering for "socially unacceptable" purposes.  

Proper money laundering isn't cheap, and as the surveillance technology improves, steps are added to the process driving the cost further upwards.  Just ask your not-so-friendly not-so-local Fortune 500 company about their accounting and legal bills... 

 

Thu, 05/02/2013 - 01:02 | 3521352 22winmag
22winmag's picture

Sort of like the ammunition situation... the 20 and 50 packs of "flawless" stuff remain pretty stable in price and availability while the 100 and 500 packs of crap ammo have skyrocketed in price and plummeted in supply.

Thu, 05/02/2013 - 01:07 | 3521370 ebworthen
ebworthen's picture

Damn, was hoping to sell my Ex. Wife's engagement ring of superior quality for a killing.

Oh well, figures.

Thu, 05/02/2013 - 01:52 | 3521416 q99x2
q99x2's picture

Hope everyone had a chance to BTFD. Next to the last chance you'll ever get.

Thu, 05/02/2013 - 02:30 | 3521445 kareninca
kareninca's picture

I do not understand my fellow females.  I have a friend who is 26, who is very, very smart, and very, very skeptical.  She got pregnant, she wanted a diamond.  Sure, the guy doesn't want to get married (he is working like crazy to support her and the infant), but she wanted a diamond.  They're broke because his wages are low and life is expensive, but she wanted a diamond.  A small diamond, okay, but a diamond. Well, she got the diamond.

Diamonds are easy to fake.  Cubic zirconium looks just like the real thing.

Diamonds are hard to re-sell.  You get a fraction of what you paid.

Diamonds are actually really common; there's no genuine shortage.  You're supporting an incredibly obnoxious cartel.

Is it the Zales ads?  The Kaye ads?  They're vile!  I just don't understand!!!!

If my husband brought home a diamond I would be frantic to return it.  I presume that you can't, since then they'd lose lots of sales to buyer's remorse.  But maybe not.  Maybe you can return them, within some time frame  -  because women are so insane about them that there would be no buyer's remorse.

Thu, 05/02/2013 - 03:43 | 3521491 vulcanraven
vulcanraven's picture

One word:

 

Indoctrinated.

 

I would have to say that of the two sexes, women are definitely the most victimized by advertising. Jesus, look what most women are willing to do to their bodies in the pursuit of matching it to look like what they see in movies, TV and magazines. It is a symptom of American culture. Men are addicted to porn and become conditioned to lust after plastic barbie dolls, and women will do anything to look like one in order to attract a man... motivated of course by lack of self worth, money, or a geniune desire for companionship(LOL).

 

This shit is so fucked.

Thu, 05/02/2013 - 04:57 | 3521531 css1971
css1971's picture

You don't need to fake a diamond, they are manufacturable. The Russians have factories turning out loads of the things. I think the technology is available in the US as well.

http://en.wikipedia.org/wiki/Synthetic_diamond

http://gemesis.com/

Diamond is diamond is diamond, a specific crystal of carbon. Which means perfect gem quality diamonds are as available as there is demand for them. A decade and diamonds will be common as muck.

In the meantime, there is another compound which is sparklier than diamond, or cubic zirconia it has a higher refractive index so the gemstones produce more "fire". If you put a moissanite (silicon carbide) gem beside an equivalent real diamond, everybody will tell you the diamond is the fake because it looks dull in comparison.

http://www.moissanitevsdiamondrings.com/differences-between-moissanite-a...

Thu, 05/02/2013 - 05:39 | 3521553 Peter Pan
Peter Pan's picture

The value of diamonds is maintained by tight control over supply and exceedingly clever marketing. The people who control the diamond trade have enough diamonds in stock to put one on every finger and every toe of every women over the age of 5.

Thu, 05/02/2013 - 03:48 | 3521494 dunce
dunce's picture

Diamonds are given to women, the most important thing is does it get you laid.

Thu, 05/02/2013 - 05:35 | 3521547 Peter Pan
Peter Pan's picture

Za Za Gabor always used to say, "darling when the engagement is broken always return the ring.....but keep the stone."

Thu, 05/02/2013 - 05:12 | 3521537 Peter Pan
Peter Pan's picture

I have noticed this effect over the years with real estate as well. The bottom part of a market moves upwards at a faster pace than the top part. I think it is simply a function of more buyers available at the bottom end and not just a lack of the snob factor.

Thu, 05/02/2013 - 06:43 | 3521591 Izznogood
Izznogood's picture

Before you ever think of investing in diamonds read this and wisen up

http://www.theatlantic.com/magazine/archive/1982/02/have-you-ever-tried-to-sell-a-diamond/304575/

Thu, 05/02/2013 - 08:07 | 3521699 LuckoftheIrish
LuckoftheIrish's picture

http://www.theatlantic.com/magazine/archive/1982/02/have-you-ever-tried-...

Have alwways found this ro be a fascinating article.

Thu, 05/02/2013 - 08:07 | 3521701 LuckoftheIrish
LuckoftheIrish's picture

And someone beat me too it!

Thu, 05/02/2013 - 08:43 | 3521783 d edwards
d edwards's picture

Soon to follow: and ETF for investing in diamonds (like paper gold and silver, etc?)

Thu, 05/02/2013 - 09:15 | 3521877 laomei
laomei's picture

When I got hitched, I budgeted for a diamond, bought some nice normal 99.999 rings and then took the difference and bought more 99.999 gold.  I recommend the same to everyone I run into.  It's traditional, diamonds are just a scam.  Rings were traditionally only for women anyways.  The giving of them is to represent an investment and a security.  "In case of hardship, break glass" sorta thing.  Diamonds have no real resale value.

Thu, 05/02/2013 - 09:15 | 3521880 Sandmann
Sandmann's picture

Diamonds are a bigger racket than the Fed. A manipulated market created by de Beers and run as a cartel for years with heavy advertising to convince men to buy women 4 C diamonds instead of zirconium and especially in full carat sizing.

It is another shibboleth that has been smashed

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