This is why diamonds aren’t rare or valuable

This is why diamonds aren’t rare or valuable

Colour, cut, carat and clarity. These are the four markers which have come to characterise the world’s most famous gemstone. These dazzling nuggets of crystallised carbon conjure ideas of wealth, luxury and love. Diamonds are a girl’s best friend. Diamonds are forever. And diamonds are the world’s biggest con.

Last week, the largest colourless diamond ever put to auction fetched a price of $33.7m. That anyone believes it’s worth that amount of money is the result of a corporate cartel and the most prevalent example of brainwashing available to see in the western world.

At the centre of the conspiracy is a billion-dollar mining company. In 1870, huge supplies of diamonds were found near the Orange River in South Africa. Shipped out by the truckload, it became apparent that this monumental discovery would cause prices to plummet.

Investors therefore decided to combine the whole industry into a single entity - De Beers Consolidated Mines, Ltd. As they controlled global trade, De Beers operated under a number of names and acronyms. In Israel, for instance, it was known simply as “The Syndicate”.

Having created a diamond mining monopoly, they could restrict the supply of diamonds to inflate their value. While similar commodities were subject to market fluctuations, the value of diamonds remained artificially high and artificially steady. At best, this was a cunning trick. At worst, it was large-scale market manipulation to con consumers out of billions. However, De Beers didn’t stop there - because in 1929, there was one economic event that even the diamond trade couldn’t avoid.

The Great Depression saw diamond prices fall steeply. Harry Oppenheimer, the son of the founder of De Beers, therefore enlisted the help of New York advertising agency N. W. Ayer. The question was clear. How could they persuade cash-strapped Americans that diamonds were both a necessity and a luxury?

Ayer set about instilling the idea in the general public that diamonds were a necessary constituent of an engagement ring. Three quarters of De Beers diamonds were already sold to the American market for diamond rings but these were predominantly smaller stones.

In their own research, Ayer found that the total amount of diamonds sold (measured in carats) had fallen by 50 per cent since the end of World War I. Furthermore, the quality of these diamonds (measured in dollars) had fallen by almost 100 per cent. As such, the objective was twofold: to increase the average spend on a diamond engagement ring and to attract consumers who wouldn’t otherwise consider purchasing one. They then set about creating a campaign that would transcend advertising.

N. W. Ayer reengineered the perception of these stones - making a diamond a necessary part of any meaningful proposal. They represented integrity, dedication and everlasting love. This was largely achieved through a public relations campaign. Designers, for instance, would talk on the radio about the “trend towards diamonds”. Traditional advertising aimed at the wealthy featured classic paintings in an attempt to tie the idea of elegance and heritage to diamonds and to effect behavioural change.

“Since Great Britain has such an important interest in the diamond industry,” an Ayer memo stated, “the royal couple could be of tremendous assistance to this British industry by wearing diamonds rather than other jewels.” Queen Elizabeth subsequently embarked on a trip to South Africa which saw her visit a number of diamond mines. Needless to say, this was well publicised. She even accepted a diamond given to her by Harry Oppenheimer himself. Yet this was still only the tip of the iceberg.

An agreement with Hollywood provided an important avenue for further publicity. Movie stars would wear diamond jewellery and whole scenes would revolve around promoting the importance of diamonds. A teary-eyed actress would lovingly accept a proposal - her dashing beau placing a diamond ring on her finger. Considering that one of America's biggest exports is American culture itself, this campaign was far-reaching.

In 1941, N. W. Ayer reported to De Beers that the sale of diamonds in the US had increased by 55 per cent since 1938. “There was no direct sale to be made,” Ayer noted. “There was no brand name to be impressed on the public mind. There was simply an idea - the eternal emotional value surrounding the diamond.”

If this form of advertising was bordering on the subliminal, what came next was unashamedly sinister. “We are dealing with a problem in mass psychology,” Ayer declared. The agency then sought to make the diamond engagement ring a “psychological necessity”.

Their target audience was defined as “some 70 million people 15 years and over whose opinion we hope to influence in support of our objectives.” In addition to more traditional methods such as a weekly “Hollywood Personalities” service providing the press with information on the diamonds worn by celebrities, Ayer also organised a number of talks at schools around the country. “All of these lectures,” they stated, “revolve around the diamond engagement ring, and are reaching thousands of girls in their assemblies, classes and informal meetings in our leading educational institutions.”

Following World War II, the American public enjoyed increased upward social mobility. The lower and middle classes were more aspirational than ever before - and they looked to the status symbols worn by their Hollywood idols as markers of success. “We spread the word of diamonds worn by stars of screen and stage,” the agency posited, “by wives and daughters of political leaders, by any woman who can make the grocer's wife and the mechanic's sweetheart say 'I wish I had what she has’.”

In 1951, Ayer noted: “The millions of brides and brides-to-be are subjected to at least two important pressures that work against the diamond engagement ring. Among the more prosperous, there is the sophisticated urge to be different as a means of being smart.... the lower-income groups would like to show more for the money than they can find in the diamond they can afford…”. The solution was to make diamonds more than a lifestyle choice - to make them an institution. Further blurring the lines between education and advertising, Ayer established an organisation which aimed to control all news and information on diamonds.

“Women are in unanimous agreement that they want to be surprised with gifts,” Ayer asserted. “They want, of course, to be surprised for the thrill of it. However, a deeper, more important reason lies behind this desire.... ‘freedom from guilt.’ Some of the women pointed out that if their husbands enlisted their help in purchasing a gift (like diamond jewelry), their practical nature would come to the fore and they would be compelled to object to the purchase.”

Ayer studied the “gift-process continuum” and found women daren’t ask for diamonds specifically - possibly due to the fact that they’re often seen as ostentatious. However, they will drop subtle hints such that the man knows that diamonds are “OK” - leaving him to lead. A fitting metaphor for courtship itself, they sought to exploit the “surprise” element of receiving a diamond engagement ring - which fed into their campaign.

Meanwhile, De Beers continued to manipulate the diamond trade. In the 1960s, they successfully absorbed newly-discovered soviet diamonds into their supply. However, these Siberian-mined diamonds were smaller. As such, Ayer adjusted their campaign. Again, celebrities were used, but this time they sported smaller stones. Promoting a focus on quality over size, terms such as “clarity” became a part of the modern discourse on diamonds.

De Beers created a purpose for the even smaller stones - an “eternity ring”. This featured many smaller diamonds set into the band of the ring. Then Ayer created a new target market - the married man. The eternity ring was marketed as a piece of jewellery for a husband to present to his wife as a sign of everlasting love. This further enforced the ideas of commitment and loyalty which had come to characterise De Beers’ product.

A woman wears an eternity ring

In their 1978 strategy report, Ayer claimed that they had been too successful in marketing smaller stones: "Owing to successful pricing, distribution and advertising policies over the last 16 years, demand for small diamonds now appears to have significantly exceeded supply even though supply, in absolute terms, has been increasing steadily." Again, they simply adjusted their campaign.

One year later, N. W. Ayer reported that, over the preceding 40 years, they had increased De Beers’ sales by 10,000 per cent. Even in Japan, where the customs of marriage had prevailed against all odds and where little interest had ever been shown in giving diamonds as a token of love, Ayer was able to successfully market diamonds as a modern, western break from tradition. This created their second largest market outside the US.

However, there remained an odd trend in this form of commodity. Diamonds had become a big, if not exclusive, part of popular culture. But for all their beauty, charm and perceived value, they were impossible to sell. Of course, this was no accident. A thriving secondhand market could affect the prices of firsthand diamonds. Ayer had therefore attempted to instil the idea in the general public that diamonds were to be cherished rather than sold on. But importantly, when one does attempt to buck the trend, they’re faced with that rarest of situations - where the price is set not by the seller but instead by the buyer. Fifth Avenue jewellery stores are known for having a “no buybacks” policy on their diamonds and the companies which do buy them secondhand will seldom match the price which was paid.

“We usually can't pay more than a maximum of 90 percent of the current wholesale price,” explains Jack Brod, president of Empire Diamonds in New York. "As an 8-year investment the diamonds that we bought have proved to be very poor," stated Money Which? editor Dave Watts, having only made a 3 per cent profit on his diamonds in almost a decade. In a separate experiment, he found that his diamond had been switched with a smaller one during the valuation process and in a further experiment still, one diamond depreciated from £2,595 to £1,000.

“Investment-grade” diamonds simply aren’t found in jewellery and, depending on who you speak to, may not be a worthwhile investment at all. However, for criminals, they are even harder to get rid of - with New York City police once recovering a $50,000 diamond which had been sold on the black market for a mere $200.

Ayer's campaign continued to bring value to De Beers, and traditional forms of advertising remained an important constituent. One poster featured a pouting woman in a scarf, a diamond ring on her finger, and the caption: “Two months' salary showed the future Mrs Smith what the future would be like.” Indeed, it was Ayer who created the “salary rule” whereby a man should spend a set period of time saving for a diamond engagement ring. In the 1930s, it was suggested that this should be one month's salary. By the 1980s, it had doubled.

De Beers’ market manipulation continued, including the stockpiling of diamonds worth billions. However, they came across problems when countries or companies wanted to leave their cartel. Furthermore, loans collateralised with diamonds have been shown to be highly unstable - putting entire nations' economies at risk. Diamond smuggling and questions over the morality of mining methods also provided shakeups in the trade.

Like the American housing market prior to the financial crash of 2008, many people believe that the diamond trade is a bubble waiting to burst. An enormous industry built on an illusory premise, experts believe this is a real possibility. "Investment diamonds are bought for $30,000 a carat," as one New York diamond dealer explains, "not because any woman wants to wear them on her finger but because the investor believes they will be worth $50,000 a carat. He may borrow heavily to leverage his investment. When the price begins to decline, everyone will try to sell their diamonds at once. In the end, of course, there will be no buyers for diamonds at $30,000 a carat or even $15,000. At this point, there will be a stampede to sell investment diamonds, and the newspapers will begin writing stories about the great diamond crash. Investment diamonds constitute, of course, only a small fraction of the diamonds held by the public, but when women begin reading about a diamond crash, they will take their diamonds to retail jewellers to be appraised and find out that they are worth less than they paid for them ... That will be the end of the diamond business."

N. W. Ayer created arguably the most successful advertising campaign of all time. Prior to the 1930s, diamond engagement rings weren’t the norm. On the eve of World War II, a mere 10 per cent of engagement rings featured diamonds. By the end of the 20th century, this figure had risen to 80 per cent. Oh, and if you were wondering who first tied together the words “diamond” and “forever”? You guessed it.

The diamond trade has now been de-monopolised however, it remains in the hands of a small number of large companies. That prices remain artificially high is a credit to the foundation laid by De Beers.

This all makes me feel pretty stupid knowing that - having once been an impressionable 20-year-old - I too bought diamond jewellery imagining that it was an investment as well as a statement. However, like far too many people before me, I fell prey to the allure and purported glamour of those sparkly little stones.

Featured illustration by Egarcigu