Diamond Prices Are Going To Collapse

Tyler Durden's Photo
by Tyler Durden
Tuesday, Jan 02, 2024 - 10:00 AM

Authored by Jeffrey Tucker via The Epoch Times,

What is the modern world’s most powerful and successful industrial cartel?

You could say it is pharma today but there are too many competitors in the realm of drug production to qualify as a cartel.

It is a fantastically successful corporatist mess but it is not technically a cartel.

Until fairly recently, there was one institution that qualified: diamonds as produced and distributed mainly by DeBeers Consolidated Mines in South Africa.

For the better part of the 20th century, this one company controlled 90 percent or more of the global market for diamonds. Coming with that has been amazing amounts of corruption, graft, and even war to maintain control.

That control began to face real stress in the 21st century, as the company had failed to line up various distribution networks in Canada, the United States, and elsewhere, partly due to pressure from online commerce plus the unrelenting drive of the market to break down even the most powerful industrial monopolies.

Earlier last year, the diamond market faced a remarkable decline in the midst of a terrible global inflation, to the point that prices hit a 14-year low.

That prompted DeBeers to engage in a deliberate restriction of supply designed to stabilize the market. That seemed to work and now production is back up again.

And yet this is not going to last.

Just watch this market over the coming 5 years. We are going to see a stunning fall in prices. There is one major reason: lab-grown diamonds.

I was just at Macy’s and I was amazed to see a full display, more in the view of the consumer than the “natural” diamonds. I was truly dazzled at the beauty. I’m no specialist but I must say that they looked spectacular. The salesperson confirmed that she sees far more interest in these products than traditional diamonds.

And the price? For now at retail locations, they are 40 percent cheaper than regular diamonds. But they can be 60 percent lower or even as much as 90 percent lower. And this is with the market just now starting to mature. They are reaching the consumer marketplace as never before. We seem to be at a turning point.

The Gemological Institute of America stopped calling them “synthetic” in 2019 because that’s not accurate. According to the GIA, “Laboratory-grown diamonds have essentially the same chemical, optical and physical properties and crystal structure as natural diamonds. Like natural diamonds, they are made of tightly-bonded carbon atoms. They respond to light in the same way and are just as hard as natural diamonds. The main differences between laboratory-grown and natural diamonds lie in their origin. Think of it this way: laboratory-grown diamonds are like ice from your refrigerator, while natural diamonds are like ice from a glacier. They are both ice, although their formation stories and the age of each are very different.”

The dropping of that little word seems to have established lab-grown diamonds as authentic luxury goods. There is even a political twist here: the legend on the street is that they are more environmentally friendly than the naturally grown ones.

The Federal Trade Commission has also said that these products should be considered diamonds in every way this term can be used. This recognition has provoked a massive industry shift. Global sales for lab-grown diamonds increased to $12 billion in 2022, up 38 percent compared to the year before.

CBC News reports that “rapid growth has attracted the attention of mainstream jewelry giants like Pandora and Swarovski, which have launched their own lab-grown diamond lines. Luxury brands are beginning to embrace the created stones, with Prada introducing them into its latest fine jewelry collection. The gems are also showing up on red carpets, shining bright when worn by celebrities like Taylor Swift, Jennifer Lopez and Pamela Anderson.”

These days, I like to look for every reason to celebrate when markets seem to be working well, and this is one of those cases. For the better part of 100 years, diamonds have been the most overblown cartel good in the world, thanks to brilliant marketing (“A diamond is forever” is a DeBeers marketing pitch) that includes one of the century’s most popular songs (“Diamonds Are a Girl’s Best Friend”).

They came to be associated with wedding rings even though there is zero historical precedent for that, and the prices have been sending young men to the poorhouse for many generations.

Essentially, the diamond wedding ring reversed the ancient tradition of the dowry, which was the payment from the bride’s family to the groom. The idea was to make the daughters more marketable in the marriage market and it often meant that the newly formed family possessed new wealth at the very start of the match.

But with the diamond wedding ring, things got reversed: the groom would enter into marriage with new debt that had to be serviced just following marriage, and that was made worse with children, another car, and a house. Not a good way to start.

The lab-created diamond dramatically lessens the pressure, and allows the bride to wear a rock of magnificent size at a fraction of the price. So you get the high status without the high debt.

The development has sent DeBeers and the entire industry into an existential crisis, dealing what might be the final blow to Lloyd’s of London and the Rothschild family that has long controlled international diamond dealing through DeBeers. Give it a few years and we will see natural diamonds forced to relent with pricing. This time, fancy tricks like sudden reductions in supply will not work with ever more labs getting into the diamond business.

My own mentor Murray Rothbard would be cheering right now. He wrote in 1992:

“in South Africa, the major center of world diamond production, there has been no free enterprise in diamond mining. The government long ago nationalized all diamond mines, and anyone who finds a diamond mine on his property discovers that the mine immediately becomes government property .... In short: the international diamond cartel was only maintained and has only prospered because it was enforced by the South African government.”

Rothbard’s prediction of a long-term collapse of this market due to new pressure turns out to have been remarkably prescient.

Thanks to technology and declining costs of production, it seems as if the dream is finally coming true.

Diamonds could soon be within the reach of any budget, with some predictions that prices could fall into $100 or even $10 per carat. What a lovely world that would be!