Wholesale Diamonds And The Economics Of Bloodshed

The diamond industry is worth literally billions of pounds a year in the trade of wholesale gems to industry and the domestic market. The way these markets work vary dramatically; one has a high demand for the physical properties of the stone as the hardest natural material, the other has a high demand created by the desirability of a rare and beautiful gem.

Diamonds are actually not as rare as we are led to believe and the market is a highly organised infrastructure to keep prices stable and demand high. Couple this with the wholesale trade of illegal or 'blood' diamonds and the financial structure of diamond market becomes increasingly complicated.

Until the late 1800s diamonds were a rare gemstone and highly prised. Only the wealthiest could afford a good quality gem and owning diamond jewellery was a status symbol or sign of wealth. There was a small commercial trade in diamonds from Africa and Australia, with other diamonds entering the market as second hand jewellery.

The stones from Australia are famed for being the hardest in the world, and so have been designated for industrial use, whereas the African gems are desired for their aesthetics, making them destined for the jewellery market. Suddenly, due to the discovery of a new mine in South Africa, the market became flooded with new gem quality stones, and the value of the diamond dropped dramatically.

It took a massive advertising campaign by the De Beers group, one of the world leaders in diamond mining to stabilise sales and persuade the public to keep hold of the diamonds they have as well as controlling the rate of wholesale stones appearing on the market. Firstly, the control of supply was at the source, only allowing a certain percentage of the mineral onto the market.

This then allowed the price to be stabilised; because demand was kept high by restricted supply, the major companies could set a nominal value for an end product. For example, the price of a reasonably sized diamond engagement ring should remain at around three months wages.

The other factor that needed to be addressed was the second hand market. De Beers at this point launched one of the most successful marketing campaigns of all time by essentially persuading the public that 'a diamond is forever', implying that rather than ever selling a piece of jewellery with the gemstone in, it should be kept as a precious heir loom. Starving the market of these antique pieces not only boosted the demand for new rocks, but increased the popularity and affected the actual worth of the stone at the point of wholesale.

The trade of so called blood diamonds does not fit into this category, and where there is demand, there is an opportunity to supply on the black market. The way these stones differ is that the money raised from them goes directly into the pockets of the war lords that run the mines. The people in the areas where the mines are get little if any money at all, and commonly the level of conflict over the commodity leads to bloodshed. To curb the trade from illegal sources, a classification and certification system has been introduced.

Now all official diamonds are registered so they can be traced from the source to sale. The catalogued stones are engraved with a laser to identify them to any expert under magnification. This is going a long way to ensure that consumers are not unintentionally funding criminal activity, but as with any black market commodity, restricted supply still creates a demand. While diamonds are considered the gem du jour, there will always be those willing to spill blood to take their share of the profits.

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