Recycling diamonds: A trend is here to stay

In recent articles, I have explored the way that consumers make decisions about buying diamonds and diamond jewellery. I have shown how these decisions are affected by age, income level, and geography, and how the relatively recent introduction of gem-quality lab-grown diamonds is giving consumers a significant new alternative in purchasing decisions.

Another important market trend is the sale of ‘recycled’ or heirloom diamonds.  There are different estimates regarding the volume of previously-sold diamond jewellery on the retail market, but it is clear that such sales are increasing.

Diamond values have been steadily increasing for decades. Consumer access to information about diamond prices has also improved. Together these factors have led to an increase in the quantity of recycled diamonds entering the market, which some experts estimate to be as high as 5%-10% of current market supply. This may be harming the perception of diamonds as rare and valuable. On the other hand, the fact that recycled diamonds can be sold back on the market demonstrates that diamonds have an eternal value and that owners of this valuable asset have the option of recycling.

The Ease of Recycling Jewellery

If you wanted to sell your jewellery prior to the advent of the Internet, you had only a few options.  First, you could try to negotiate a private sale either directly or through a reputable auction house.  This might help you to get a good price; however, this was only possible for very high value items and the market for this type of jewellery was very limited.

Second, you could try to sell the jewellery back to the jeweller where it was originally purchased, or to another jewellery retailer.  While this market was fairly liquid and usually ensured a ready buyer, the prices received were very low, often just 25% - 50% of the initial purchase price.

Third, you could sell the jewellery to pawnbrokers for cash or for them to sell on consignment in their stores.  This too often left the seller displeased: prices received from pawnbrokers were often much lower than what the seller had originally paid for the piece, and sales on consignment were limited because most pawnbrokers focused only on smaller local markets.

The situation today is very different; the Internet has spawned myriad new options for consumers who are looking to sell diamond jewellery, as well as just about anything else.  Online classified sites allow sellers and buyers to connect in local markets, or even across the planet.  Auction sites like eBay gives sellers a more effective tool for maximizing price through wider exposure. As a result, a search of ebay.com for “diamond ring” returns almost 1.7 million individual listings.

Some companies have even developed their entire business model around selling only ‘recycled’ diamonds, marketing the environmental advantages of choosing an existing diamond over a newly mined one, which reduces the carbon footprint of the purchase.  This type of marketing has proven very effective with a younger generation of consumers who value environmental responsibility very highly.

The rapid increase in the price of gold between 2000 and 2011 also changed the market for diamonds unexpectedly.  The price of gold went from under $360 an ounce in early 2000, to over $1,840 by the end of 2011.  This led to the proliferation of “gold for cash” buyers in storefronts and shopping centres around the world.  Consumers were bombarded with aggressive advertising telling them that now was the best time ever to sell their gold jewellery that had been sitting in jewellery boxes for years.  The diamond content of most jewellery was often an afterthought and many of the “gold for cash” outfits were not qualified to properly assess the diamond content in the jewellery they received.  

The Breakup of Marriages

Diamond marketing portrays a strong link between the permanence of diamonds and the eternity of relationships. In reality, however, a large number of marriages end in divorce.

According to divorcemag.com, the northern nations of Sweden, Finland, and Belarus have the world’s highest divorce rates.

While diamond-consuming China has bucked the trend of widespread divorce, in recent years divorce has become more socially acceptable there and, according to Reuters, China’s divorce rate has steadily increased since the early 1980s.

One of the more subtle reasons for the popularity of giving diamond engagement rings was the financial security the ring provided a woman in the event that a couple choose to break off their engagement.  Apparently this consideration is still relevant; women often see the disposal of their engagement ring as an important part of achieving closure on a failed relationship, both emotionally and financially.

Heirloom Jewellery

The gifting of ‘heirloom’ jewellery has steadily risen for many years for a number of reasons.  Diamonds gained large-scale popularity in the 1950s, so many people who received diamonds at that time have since passed on and transferred those assets to their children and grandchildren.

Given the high price of diamonds today, many young couples struggle with the affordability of diamonds.  Heirloom pieces give young suitors an opportunity to present their beloved with a diamond, without taking on a further financial burden as a young couple in today’s troubled economy. 

There is also a growing market for redesigning heirloom pieces in order to personalize them, which allows owners to create a modern design for a piece while retaining its sentimental value.

The heirloom engagement ring gained further popularity in 2010 when Prince William of England proposed to Kate Middleton using the late Princess Diana’s sapphire and diamond engagement ring.  The growing list of celebrities opting for recycled engagement rings includes Scarlett Johannsson, Penelope Cruz, Mary Kate Olsen, and Milla Jovovich, to name just a few.  This has helped bring recycled diamonds further into the mainstream, and increased the number of consumers considering buying or gifting a recycled diamond piece.

Many companies have even introduced lines of ‘heirloom’ or ‘vintage’ jewellery lines that have brought design concepts from the 1940s and 1950s back into vogue. 

The Great Wealth Transfer

According to many analysts, the phenomenon dubbed the “Great Wealth Transfer” by the media is underway.  This term refers to the transfer of assets from the high-consuming baby-boomer generation to their children and grandchildren.  According to a study by the consulting firm Accenture, this transfer of wealth will see $30 trillion in assets changing hands from one generation to another over the coming few decades.

As life expectancies around the world continue to increase, this wealth is increasingly flowing into the hands of middle-aged children with established careers and financial stability, many of whom already own diamond jewellery.  In many cases, the transfer of wealth can trigger important tax considerations that require children to dispose of assets, often quickly, in order to pay estate taxes.  This has contributed to the inflow of heirloom and estate jewellery pieces entering the market, as children do not have the same sentimental attachments to jewellery that their parents once did. 

In Japan, an older and often overworked population has begun disposing of material wealth in a concept known to Japanese as Danshari, meaning refusal, disposal, and separation from material things and pursuit of simplification of life.  Until recently, Japan was the second largest diamond-consuming nation in the world. Thus a tremendous amount of recycled diamond jewellery is finding its way from Japan into China and other Asian markets.

Financial Necessity

Diamond recycling became a noticeable trend after the financial crisis of 2008 and during the subsequent recession.   With the US housing crisis that preceded the crash, many families were at risk of losing their homes and spending on many non-essential items fell rapidly.  Diamond jewellery sales in the US fell abruptly in 2009 and have not yet recovered to 2006 levels, according to research by Diamond Shades.

The financial crisis brought about a massive second-hand sale of many luxury items, including collectible cars, antiques, art, and of course jewellery.  This created a double-edged sword as the market was seeing increased supply of diamonds at a time when demand and prices were already under downward pressure.

Since diamond sales in any nation are closely linked to the overall financial health and income of that nation’s citizens, the state of the global economy has a major effect on retail sales, as well as on the likelihood that households will look to dispose of their diamond jewelry assets in tough times.

Although recycling has not reached a level which would fundamentally change the industry, and will probably never do so, it is clear that more and more consumers conceive recycling as a possible exit for a valuable asset, which means that recycled diamonds are here to stay. The market thus needs a crystal clear system that will make it possible for those recycling their diamonds to be able to define and receive the correct price for their diamonds. We will be suggesting ways to do so in one of our next articles.

The views expressed here are solely those of the author in his private capacity. None of the information made available here shall constitute in any manner an offer or invitation or promotion to buy or to sell diamonds. No one should act upon any opinion or information in this website (including with respect to diamonds values) without consulting a professional qualified adviser.