Entrepreneurship
The Secret World of the Diamond Trade
It’s not all glitz and glam…..
Diamonds…..synonymous with royalty, love, and opulence. At least that’s what comes to my mind when someone mentions the word Diamonds to me. That, and Breakfast at Tiffany’s. Diamonds can do no wrong. They are a girl’s best friend and the symbol of eternal love. Because as we all know “A Diamond is Forever”. These are all the positive messaging that the diamond industry has been spewing to consumers for the last few decades as their main marketing. For the longest time, the general public was oblivious to the dark side of the diamond industry, some of it which was shown in Leonardo’s epic hit movie Blood Diamond.
But that’s as far as it goes right? Those two polarities have to stop there. Everything in between has to be clear-cut and above board. I mean we are after all in the 21st century and diamonds are considered precious stones, so there must be a transparent benchmark on it similar to silver and gold. Or so you would think.
Nothing could be farther from the truth. I recently watched a new series called Street of Dreams with Marcus Lemonis on NBC. The first episode so happened to be an episode about diamonds. I was intrigued since it showed a side of diamonds which I’ve never seen before. Normally an exposé about diamonds would be how they are sourced, the famous 4 Cs (Cut, Carat, Clarity, and Color), and the best diamond to buy for your budget. But this time was different. I was shown the backdoors of the diamond industry which not only blew my mind, but made me realize how worthless a diamond really is.
Diamonds are mostly mined in the African continent. The seven diamond-producing countries are Russia, Botswana, Canada, Angola, South Africa, the Democratic Republic of the Congo, and Namibia. The price of a rough diamond could be anywhere from 2–10 USD depending on the size. Immediately this made me question how does a diamond cost thousands or even millions of dollars by the time it gets to a jewelry store? Apparently, it’s due to the many many many mark up and changing hands that the diamond has gone through (one diamond can change hands up to 20 times so yes, it’s many!).
After the diamonds are mined, they need to be given the Kimberly certification which ensures that the diamonds are legit and conflict-free. The Kimberly certification was officially implemented in 2003 and was supported by the United Nations. Rough diamonds don’t exactly come with a serial number on them nor can anyone tell just by looking at them where they were mined or really originated from. What this means is that it is possible for a diamond to be mined in a conflict area and then smuggled in with non-conflict diamonds to receive the Kimberly certifications in one batch.
After these diamonds are mined, they are sold to cutters and polishers who used to be located mostly in Antwerp. Prior to the world wars, Antwerp was the center of the diamond trade. After the war, many of the traders moved to America and established a new destination for diamonds. Today with globalization, 90% of diamonds are cut in India. After these diamonds are cut, they are then sent all over the world. The highest demands are currently coming from China and the US.
The diamond cutters and sellers in India, when they are selling the diamonds to the US, they sell mainly to the members of the Diamond Dealers Club (DDC) in New York, where they have a headquarter in the Diamond District. In the club, everything is done based on an honor system. Trust is the actual currency in these diamond trades. What surprised me the most is that even in 2021, the dealings of the diamond trade have not changed much since 1492 where the phrase “Mazal Bracha” was first mentioned. This phrase apparently is the phrase that seals the deal.
From Japan, India, Antwerp, and New York. If you are going to close a diamond deal, you would say this simple phrase “Mazal Bracha” which translates to fortune and blessing. There is no need to sign a contract, no need for a down payment. Saying these words signifies that the deal is done. Should the person who mentioned these words not pay up or deliver the goods, then that person will be blacklisted from the diamond trading community worldwide. An email would be sent to every diamond dealer in the world and that person would never be able to sell trade diamonds again.
Now correct me if I’m wrong but doesn’t it seem odd that diamonds that cost thousands and even millions of dollars are traded with an honor system? Much respect for the old ways and kudos for having kept this tradition alive since 1492 but this got me thinking if diamonds are a precious commodity, shouldn’t there be a formal paper trail? MoUs, and civil suits if anything goes wrong? A recent update posted on the Diamond Dealers Club mentions that now if there is a disagreement, arbitration can be done which involves a person who is not a member of the club. This made me realize even more that the price and quality of a diamond is in freefall, that is why the dealings are made with a freefall system where again trust, is the main currency.
Not only does the trading system of diamonds didn’t sit well with me but did you know that the diamond industry is unregulated, and has no set pricing except from one report from the Rapaport Group. The Rapaport group was founded by Martin Rapaport who himself was a diamond trader. He decided to be a disruptor and published the Rapaport list so that traders could have a benchmark of what a diamond is actually worth. How crazy is that? So how were these traders pricing the diamonds pre-Rapaport report? Today, the entire diamond pricing benchmark rests on the shoulders of one man. What will happen when Martin Rapaport is no longer with us? How will we know the benchmark pricing for diamonds ever again? Diamond trading has been around since the 15th century and only in the 21st century is there a price list. Do you see why this is a cause for concern?
Normally every country would have a set pricing for precious minerals such as gold, silver, and even petroleum. But not diamonds. There is no transparency in pricing and this is what bothers me the most. How can we know what is the actual price of a diamond? A one-carat diamond is priced anywhere between USD 2000 to 25000. That’s a pretty big difference wouldn’t you say? If it was like buying a car and you know that the difference was because of the leather seats or wooden interiors it’s easier to justify. But diamonds, how can we laymen know? We are absolutely at the mercy of the people selling these diamonds.
Remember Leonardo Dicaprio’s movie Blood Diamond? So apparently things haven’t changed that much today. According to Time magazine, conflict diamonds are still finding their way into the international market, only at a lower percentage thanks to the Kimberly Certification. This is of course not something that is making front-page news at the moment, but it is still very much happening.
Considering the advances in technology that we currently have, I think this is the best time to consider alternative ways to show our love to each other rather than with diamonds. If you are however set on diamonds, I highly suggest getting a diamond that was created “Above ground”. At the moment Diamond Foundry seems to be getting a lot of buzz. Not to mention Leonardo DiCaprio himself is an investor in the venture and they have raised USD 100 Million.
Diamonds are synonymous with love because of a great marketing campaign and the term “A Diamond is Forever” was coined by one of the copywriters at N.W. Ayer in 1938. DeBeers, which had a monopoly on the diamond trade, hired Ayer to increase their diamond sales which were going down due to the war. Now in 2021, isn’t it time we stop buying into an ad campaign that was created in 1938?
I, for one, am very invested in sustainable living. For me, having learned all of this, traditional diamonds are a hard pass. Maybe if it was an heirloom and gifted to me, I might accept it. But if it is a gift purchase, I would recommend whoever is gifting such a luxurious gift to buy an above ground diamond that will allow me to sleep well at night. Another option is to put the money into a down payment on something that would be more useful like a house, a car, or even our children’s college education.
Because as it turns out diamonds aren’t a girl’s best friend after all.
