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Have you ever heard of the Tulip Mania, the Dutch tulip bulb market bubble of 1630s? At the time, tulip bulbs became highly desirable to rich Dutch consumers, who viewed them as a status symbol. The resulting high demand for tulip bulbs drove up prices in a speculative wave of trading, until demand waned and prices crashed. Some consider this event a cautionary tale for investing in diamonds. I think, however, that there are some hidden lessons to the story, which we can apply to the diamond industry..
The Tulip Mania did not develop within an organized framework. It was a wildly speculative market with few standards - not a well-developed exchange with strict standards for classification, and trade rules with long term and sustainable foundations. However, as long as Dutch consumers were interested in tulip bulbs, prices rose or remained stable. Once they lost interest, prices crashed just like any other asset on the exchange today.
The lesson to learn from the tulip bulb bubble is that when there is a group of people that recognizes and shares the same idea, together they can create a market. This market will fluctuate as the group members’ beliefs, moods and expectations change. Just like gold, art, oil, and currency, the diamond can work as an asset that serves a group educated to accept and adopt it – as long as the process of education occurs in an organized and well-thought-out fashion.
Making it happen
For diamonds to play a role as a potential wealth preservation asset, we need to reach a critical mass of folks interested in diamonds, and confident that whichever diamond they buy, they will find a buyer who will purchase the asset from them, paying them a premium, just as we do already with gold, bonds, stocks, art, watches, antique cars and much more. We should relate to diamonds not as jewelry components, but on their own terms: in the same way that the Dutch were interested in tulip bulbs in the 17th century, and the same way most people are interested in art – then and today.
This group will create resell value, which will in turn create demand and form a market. For all this to happen, we will need a critical mass of believers who will keep the value of traded diamonds sustainable.
There are many ways to create such a critical mass – primarily by utilizing marketing, education, and transparency. I’ll dive into these factors in the future, as this is only the first in a series of articles on this topic. The point I want to get across today above all is the recognition that we need to reach a critical mass of knowledgeable people who buy, hold and sell diamonds as an asset. If we reach this mass, we can create a deep and profound change in the market. This change will give rise to a new reality, in which together we form a new market for a range of diamonds that are rare, yet accessible; diamonds that make up a small percentage of the annual global output, but that occur with enough frequency to track their prices precisely.
If the Tulip Mania worries you, think about the art market. In my vision, diamonds will be purchased in the same way we buy art, which, unlike the Tulip Mania, has endured. A large section of the population understands, appreciates, and BELIEVES in art. These art buyers are educated on the history of art and on the history of price appreciation, and have full and unhindered access to all details about the art item they are considering. That is what makes the art market thrive and succeed, and what allows supporters to buy and profitably sell works of art. This is what we need for diamonds: a public that believes in the idea of diamonds as an asset, that is educated on how diamonds are valued, and that has access to all the information necessary for an intelligent purchase. Information creates belief, belief creates security, and security creates a market of believers. With a critical mass of individuals, investors, and financial firms, we will have a new market for diamonds.
Such a market can only exist when a wide community, a mass, sees the opportunity, and can act on it. It is our job to increase the number of believers in the market, and enlarge the mass. A good example is the uptick of trading in blue and pink diamonds, which occurred after I sold the Blue Moon and the Unique Pink for record prices. These events spurred the sale of numerous blue and pink diamonds, including the Oppenheimer Blue, the Millennium Blue, and others. This demonstrates how a resale value is created by the power of demand and supply. Today, we have a strong market for fancy color diamonds, with robust and sustainable prices. This enterprising spirit should be encouraged and nourished into a sustainable market for precious and rare white diamonds.
One more thing: the diamond community needs to get behind this effort. With the rise of lab-grown goods, the ongoing narrowing of profitability, the uneven playing field due to varying regulations applied differently around the world, the shifting of trading and manufacturing centers, as well as the diamond industry becoming a service provider without any real growth, we have never faced more significant challenges. It is time to adopt the idea of the diamond as a tool for wealth preservation: an asset, and not just a component in jewelry. With education, transparency, and the right marketing, we can turn around our fate by bringing a new, wider customer base into the fold. I believe this to be the future of rare, top quality, two-carat-and-up white diamonds. After all, how many diamonds set in jewelry can one consumer buy? Purchasing diamonds as an investment, however, is a different game entirely.
If we get busy doing this, and get it right, we will add to the traditional jewelry venue an important new sales channel for diamonds. Doing so will give people around the world the ability to buy and sell diamonds during any part of the economic cycle – rising or receding – and in that way, will secure our own future.
The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified adviser.
Diamond industrialist Ehud Arye Laniado is a man passionate about diamonds. From his early 20s in Africa and later in Belgium honing his expertise in forecasting the value of polished diamonds by examining rough diamonds by hand, till today four decades later, as chairman of his international diamond businesses spanning mining, exploration, rough and polished diamond valuation, trading, manufacturing, retail and consultancy services, Laniado has mastered both the miniscule details of evaluating and pricing individual rough diamonds and the entire structure of the diamond industry. Today, his global operations are at the forefront of the industry, recognised in diamond capitals from Mumbai to Tel Aviv and Hong Kong to New York.