Diamonds are forever? August 29 2015

The theories of conventional economics suggest that the interplay of supply and demand often determine the market price and hence its state of equilibrium. As consumers demand more of a product, it will incentivize producers to increase production as there is a greater potential to capture profits. On the other hand, as consumers demand less, producers will decrease production to cope with lower sales and profits. It can be said, that the consumer exerts a significant influence over the price. However, in the market of commodities such as gemstones, it is very often the available supply that dictates the equilibrium price.

The paradoxical feature of gemstones such as diamonds is that it is the supply that drives the market demand.

Having control of a steady supply of diamonds coupled with an aggressive marketing campaign enabled DeBeers to effectively extrapolate the effects of induced demand to monopolize and strengthen their position as the world’s leading dealer of diamonds.  Their ability to capitalize on a large localized supply of such an invaluable commodity effectively secured their position for generations to come.

In thcolorful gemstonese case of colored gemstones, such as rubies, sapphires and spinel, the market prices tend to be significantly less than diamonds. This is very strange given that these gemstones, especially sapphires, tend to be 4 times rarer than diamonds. Perhaps it is the very rarity of these gemstones (which limits prolonged and aggressive advertising as producers fear running out of stock) and its wide geographic dispersion (limiting the control of its supply) that enable consumers to purchase such incredible jewels at a much lower price than diamonds.

The growth in the market for colored gemstones, especially sapphires, has increase threefold from 2005 to 2012 according to a GemVal, an online gem appraisal site. According to Gemfields Company, the growth in high quality emeralds have increased tenfold over a span of 3 years. These statistics are just a glimpse into a very clear future where colored gemstones are making a significant mark in a $21 billion industry dominated by diamonds. Perhaps, diamonds are not forever anymore.

 

Sources

http://www.bloomberg.com/bw/articles/2012-11-15/maybe-diamonds-arent-forever