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Why do diamonds have poor resale value? The DeBeers conspiracy, explained

By Finserv MARKETS - Aug 2,2019
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Why do diamonds have poor resale value? The DeBeers conspiracy, explained


We all hear about people gifting diamonds to their loved ones. We’ve been told diamonds are forever. Or that, diamonds are a girl’s best friend. But no matter how elevated a status diamonds may have due to the romantic notions associated with them, they don’t carry such intrinsic value. In fact, here’s a fact: diamond engagement rings weren’t even common until the 20th century when the advertising campaigns lifted them to an exalted status as a sign of true love.

So the diamond engagement ring might be an emotional asset for you, but it is not really an asset in the financial sense of the word. Diamonds aren’t worth much, separated from the emotional worth attached to them due to the narrative of the magnitude of love being tied to the amount spent on a ring. It seems unfair that a ring is priced so whoppingly high when the distinction between a real diamond and cubic zirconia or moissanite is hardly palpable.

But diamonds have never been a sound financial undertaking. It wasn’t until the DeBeers diamond cartel decided to make a steady business out of it and created a decisive marketing campaign that diamonds became so centre stage to the idea of marital bliss.

Why the diamond rings have been called scam: there’s history here

In the 1870s huge diamond mines were discovered in South Africa. DeBeers was formed as a diamond cartel to monopolise trade in the element, stockpile diamonds and control their prices. This effort also meant aggressive marketing had to be employed to make sure there was a steady demand for diamonds that presents them as an inevitable part of an important event in everyone’s life. In a way, diamonds are all they are because of shrewd marketing by an ad agency hired by DeBeers.

The DeBeers conspiracy and poor resale values

De Beers hired Philadelphia ad agency N.W. Ayer in 1938, who then set out to manipulate the masses,getting them to believe that diamonds were in fact, forever. They figured that even in a dying economy, the one thing that doesn’t change is the emotional significance of material objects: so they went ahead and targeted love and marriage as concepts. They exploited the ideas, twisted them to suit the narrative of the big rock being reflective of that love, and started out with the very premise that people won’t resell something they are emotionally attached to, and hence will never call the bluff.

Over the next few decades, diamonds became a psychological necessity amid war and economic turmoil. But the truth stands: when you buy a diamond, you buy it at retail, which is 100% to 200% markup. If you want to resell it, you have to pay less than wholesale because the buyer is undertaking a capital risk. That 100-200% markup is essentially your loss.

Hence, there is no gainsaying that diamonds are anything but a solid investment. At most, they are a status symbol. At the very least, a shiny gift. But they will have neither store value, nor will they appreciate in value over time. It’s a dead end, investment-wise.


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