Mad About
Money
A BIT OF A BACKGROUND:
A popular diamond industry benchmark, the Rapaport
Diamond Index, states that the prices of top quality
diamonds have gone down by as much as 80% in
the last 35 years. And this collapse is real time, in
inflation-adjusted terms. For example, if a diamond
cost $6000 in 1978, as per the index it costs around
$11,000 now. Even though this might look like an
increase, but if one was to adjust it against the
inflation, then the stone has actually lost about half its
value in reality!
Diamond prices had again picked up during 1980,
but after the market crash in that year, it reached
lows and from then have not really gone up again.
They have kept up with the inflation, but if one
was to include all the related costs – broker’s fees,
commissions, retail percentages, insurance costs, etc
then the prices are still very much in the abyss. As a
comparison, people who had invested in government
bonds or stock-index funds, have multiplied their
money several times.
THE RECENT PAST:
Going a bit forward, if we look at our recent past, just
9 years ago, world famous diamond producer De
Beers opened Snap Lake - its celebrated landmark
project in Canada which was their first underground
diamond mine outside Africa. By 2014, $2.2bn
had been spent on development and operations.
However, not even a single diamond is now produced
at Snap Lake and last year, the mine was closed
along with a massive 400 job cuts. The family
responded that they are facing the worst diamond
market downturn in years.
This temporary close down of the mine basically
sums up the issues faced by the diamond industry in
current times. The downturn gained momentum last
year and has resulted in considerable financial pain
for all stakeholders including miners, dealers as well
as retailers.
THE CURRENT PRICE FALL:
Coming to the present, according to Rapaport’s report
in January 2017, the average price of 1-carat diamonds
fell by 5% and of 3-carat diamonds by 8.5% in 2016.
In the Indian context, after PM Mod’s Demonetization
move on November 8th, where high value bank notes
were illegitimated, diamond sales suffered all the
more in the fourth quarter.
Since demonetization wiped out 85% of money
in circulation, orders from local jewelers faced a
huge dent. Domestic Indian demand saw a huge
fall in demand even with the wedding season and
valentine’s season being at the forefront. Average
price of half carat diamonds and one-carat diamonds
fell another 4.8% and 3% respectively in the fourth
quarter. Only the 3-carat diamonds were seen to
hold their stand with a 1.4% price rise over this period.
Rough diamonds faced the same fate as that of their
polished counterparts.
Thus, it can be safely concluded from past data that
irrespective of what marketers say, diamonds might
not be a woman’s best friend after all, and definitely
are not forever!
35