Berko: The sham is the diamond market
Friday, July 26, 2013 7:00 AM
Dear Mr. Berko:
Nearly 10 years ago, I bought a diamond ring for my wife and paid $6,600 for a beautiful, clear and bright 2.1-carat stone. A jeweler once gave us a written appraisal for $8,200. Recently, we decided to sell her ring to raise cash because our out-of-pocket health insurance costs were bankrupting us. I had been out of a job for nearly two years. The jeweler where we bought the ring is out of business, so we took it to another jeweler, who offered us $1,450. Needless to say, we were shocked, and when my wife got home, she became physically sick. However, the good news is that the following day, the company that had laid me off two years previously asked me to return to work. I’m doing the same work at nearly the same pay, and I have to work only 30 hours a week. So we don’t need to sell the ring now, but do you think we will ever be able to get back what we paid for it?
I’m glad you found work. However, do you know that your new part-time position allows your employer to hire you without health insurance? You may have to sell that ring.
The most awesome thing about a clear, bright and beautiful 2.1-carat diamond is that there’s a silly fool who is willing to spend $6,600 to buy it. But unless you can find a wealthy Swiss admiral, I doubt you’ll get your $6,600 back. Diamonds are not precious stones; rather, the diamond market is a staged farce. The legendary De Beers cartel – which runs the diamond mines in South Africa, Namibia and Botswana – produces 80 percent of the world’s diamonds. And it does its darnedest to control the remaining 20 percent by very aggressively purchasing diamonds from other mines around the world. Because of an enormous inventory (De Beers owns millions of stockpiled stones), the cartel is able to maintain high prices and perpetuate the myth that the supply is scarce. De Beers’ brutish control of the market recently encouraged a U.S. court to demand that it refund millions of dollars to U.S. diamond buyers.
Jewelers advertise diamond rings, earrings, bracelets and necklaces in most newspapers. Have you ever wondered how jewelers can advertise a 1.75-carat diamond ring at a 50 percent discount from the list price and a pair of earrings for $2,500 that were recently priced at $4,000 and still make a bundle? Well, that diamond ring at 50 percent off can still give the jeweler a 100 percent profit. And those earrings at $2,500 may have cost the jeweler only a grand. So the ring you bought 10 years ago may have cost the jeweler $2,000 to $2,500. Meanwhile, that $8,200 appraisal has as much value as an Elvis on velvet. And I suspect that the jeweler probably would have given you an appraisal for $9,000 if you had asked for it. The jeweler who offered you $1,450 for the ring might wholesale the piece or list it for sale in his inventory at a significantly higher price. Be mindful that when we pilgrims purchase jewelry, we always pay retail and that when we must sell, we always sell well below wholesale.
There is no published pricing manual for diamonds as there is for, say, stamps. The phrase “a diamond is forever” is a clever campaign by De Beers, subtly discouraging you from selling your stone and encouraging you to pass it on as an heirloom. This frequently repeated mantra has succeeded in keeping many diamonds off the market. Can you imagine what would happen to the price of diamonds if just 10 percent of the public that bought diamonds during the past 20 years decided to sell them this year? The market wouldn’t be able to handle the onslaught; prices would collapse; and De Beers might be out of business.
When you decide to sell your ring, take it to three different jewelers. I guarantee that you will receive three widely different prices. And don’t be surprised if $1,450 is the highest offer you get.
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