For most individuals who have been in the diamond and gem world for the last 40 years, as I have, the present moment of business should come as no surprise. During these four decades I have watched the market swing from a marathon to a stroll in the park six times. Essentially, this is the nature of business. All things that go up, especially during good economic times, will eventually hit the ceiling and then will retreat to a position where they will revive.

 

In these six cycles, it often felt like the industry was in such a negative environment that it was hard to imagine a recovery. If you blow too much air into a balloon it will reach a point where it explodes. If you let some of the air out it can be sustained.

 

The diamond and gem industry as a whole is in the lower end of the present cycle and has been showing signs of this deflation for a few years. We should have all recognized the signs as it moved from subtle to apparent. Some are better prepared for this moment because they felt the wind blowing in our faces rather than our backs, while others continued to ignore the signs of this cycle of life which leads to a stressful position.

 

I use the analogy of the prophet Joseph when he predicted seven years of feast followed by seven years of famine. We have to be aware that everything changes over time – and not always in a positive way. From my perspective, we are not in a negative time but an adjustment period. Consumers are focused on many challenges, and diamonds are no-one’s priority. We have to give them a chance to catch their breath. We have created the desire as a way to express special feelings. Other material options may not be as symbolic, but priorities exist and diamonds are not one of them. So it is not a time to panic, but to reflect and maybe change our own perspective on how diamonds can evolve to be more desirable again when the opportunity arrives.

 

The diamond market is not crashing or disappearing just because it has slowed down. It is a function of world economics over which no one has control. Some of us in the industry have lost the true meaning of what a diamond represents, a subliminal association created by marketing that has been the key to industry success over the last 60 years. It’s all in the message: love, beauty and a symbol of commitment. When prices start to rise, the shadow marketers push investment as a reason to buy a diamond and are the poison of our industry. They began the infiltration of changing the motivation to the concept of investment. I have witnessed the rise and collapse of this “investment concept” since 1980. In a period of one year, the trading price of the benchmark diamond, a one carat D Flawless, caused speculation, with prices going from $10K per carat to $60K and collapsing to $9k per carat when the critical missing part of the equation was recognized, liquidity.

 

To this day, no matter what the quality of a diamond or color and size, if there is no liquidity, no buyers, the prices will drop. Even when it comes to exceptional diamonds of rare colors or large sizes, there are always moments where there are no takers. This misleading information is the cancer of our industry because it traps people in false promises. We do not sell investments; we sell joy, pleasure, happiness and love.

 

With regard to the investment concept, there are a few diamonds that have the potential to appreciate enough over the long term to be considered as an investment, or at least a store of value, but they do not all present such an opportunity.

 

In an important analysis by diamond expert Ehud Laniado of Mercury Diamond using metrics over the last decade, he pointed out that approximately 1.5 percent of colorless diamonds have the potential to appreciate over time. I believe that Laniado has done an extremely fine job of due diligence in this category. From my perspective, less than 1 percent of natural color diamonds have the potential for financial growth, and a majority of these options are beyond the capacity of the average middle class individual. As a store of value (not necessarily appreciation) there is a little more strength to this perception.

 

All gems have gone through the cycles of the last 40 years. Gems, including color diamonds, are no exception to the rules of finance, but they must be extraordinary to be considered as investment potential. There are so many beautiful natural color diamonds in the world and consumers have to find the one that fits their taste and budget. It should be something that they want to keep for a lifetime rather than looking for the exit strategy the day they buy it. Too much emphasis is put on the concept of “the best” which is a trap for consumers. There is no such thing as the best, as nature has no limits and people have different tastes and opinions.

 

When we experience a lull in business, many feel the sky is falling in. They come up with excuses for declining sales, such as competition from alternative choices. Haven’t diamonds always been an alternative to luxury fashion and accessories if a customer is more interested in it at that moment? All the substitutes for natural diamonds come up with marketing strategies to lure people by a subliminal message. People need choices. All the alternatives to natural diamonds come up with messaging to sell their product which is usually based on saving money to buy something cheaper that is close to nature's product. All gem substitutes may be cheaper, but they do not offer any store of value and zero liquidity if you want to sell.

 

Diamonds have a true and real message. Their desire and history began when they were first discovered based on their rare attributes. It is only in the last 50 years that they have become available to the masses, but they were always the choice of the people who could afford them.

 

So what is the present state of the natural color diamond business? It is relatively quiet at the moment, just like the industry as a whole, but it's not coming to an end because of alternatives or lack of interest. Patience is required and time to reflect on how we make adjustments to our marketing strategies and make beautiful jewels to surround our precious stones, thus creating more desire. We must continuously reinvent our approach and reach out to appeal to consumers in order to remain relevant. Those who don’t will be absorbed by the innovating designers, and branding that holds to the belief that a diamond is a connection to love, beauty and nature.

 

I am confident that sooner rather than later our industry will begin again the upward cycle that makes us proud to be part of this amazing world in which we have been so fortunate to work.

 

Alan Bronstein is President of the Natural Color Diamond Association.