Transparency in diamond world by Marcello Manna

Transparency in the diamond world.

The most precious and most clear raw material in the world has had his own point of strength in the NON-transparency and in the information asymmetry. Point of “force” for those who possessed the knowledge required to mine, process and trade the product; point of “weakness” for all other operators and final consumers. All of you remember the famous De Beers campaign “a diamond is forever” since 1948 on the media around the world to promote its knowledge and diffusion. De Beers thought of forcing the entire industry to prepare themselves to meet the quality demand from the public who were touched by the famous slogan. After the war, as now, the problem was the strong incompetence and unpreparedness of traders that do not adequately know diamond as a gemstone and its market. It is common to come across traders and jewelers to detail which do not distinguish a glass vs a precious diamond! After 1990, the gemological analysis came from the US, the so-called “certificates” that revolutionized the way we select and sell the diamonds: one price for one diamond and eventually sealed for safety. The keys to assign a value to a polished diamond, were defined in 1953 by the GIA (Gemological Institute of America) that still gives the most prestigious academic qualification to the world in the field of gemology of Graduate Gemologist (like me!). The GIA is an educational organization non-profit and was founded in 1931 in Los Angeles by the jeweler Mr. Shipley with their savings, which he considered absolutely unacceptable that traders involved did not have the basic knowledge to recognize and evaluate gemstones.

Gemological analysis should refer to the international classification standards introduced by GIA which can be summarized in the famous four “Cs”: CUT, CLARITY, COLOR and CARAT.

Certification or gemological analysis of a diamond is not an estimate, but it is a means to allow a professional to arrive at an estimate and performs similar functions to the judgment of a rating agency. So serious warning for those who buy a gem or a gem for investment purposes, the gemological certificate must be authoritative and internationally recognized, or when you decide to sell your own diamond or gemstone, you could have unwelcome surprises.

Knowledge and transparency should not remain abstract ideals in an industry that was moving so much money. In 2002, it was signed – under UN auspices – the Kimberley Process Scheme, an agreement among the major countries involved in diamond production and trade to safeguard the workers’ conditions during production and preserve trade from dangerous infiltration of illegal financing or money-laundering.

If the first step the authenticity and legality of the product could be achieved delivering the certificate to the customer, the price remained the question: where is the price of diamonds? In 1970, Martin Rapaport had the brilliant idea to formalize what was going on every day in the halls of trade in 3 most important diamond market place: Antwerp, Tel Aviv and New York. Until that day, prices were taken from the local market and, what was true in Antwerp, did not correspond in New York or Tel Aviv.

The problem was: how to code the price of 16,000 qualities and make it easy?

After a few years, he found the system and every thursday afternoon the diamond industry waits to read the “list” (Rapaport Diamond Report) to buy and sell diamonds all over the world. This list is not public, but it is reserved for professionals who subscribe the service. This information monopoly in the diamond industry is facing to many and many attacks in the internet age, but not towards Rapaport, but who hides it. If there are several attempts to compete or to imitate the Rapaport price list, the most consequence is positive for final consumers. If they read this list, they would be able to get the second key to the determination of the price of diamonds. Today, there are companies, as Investment Diamond Company, that sell diamonds directly to final consumers at the Rapaport price. So, when you buy a diamond, always ask what is the difference between its price and the current Rapaport quote, in order to evaluate the convenience. Many traders in the market are part of a past world and, by admitting it, it would be the first step to go from the depressed concept of “crisis”, to the most positive idea of “change”. Last news, De Beers has opened the service – for the moment limited to the United States – for the sale of second hand diamonds at market prices.

In many countries, where the official price list of the diamonds is almost unknown to the jewelry buyers, diamonds are sold at 2-3 times more than the Rapaport price list!

The inevitable exit from the market of inefficient operators that produce and sell without making a profit, will faster create a more efficient market with right margins for traders who will resist. Thanks to internet, this process continues, even with resistances, and today everything seems to go in the right direction of transparency both in commercial transactions both in the accountability to meet the severe laws reserved to the traders of the diamond market.

Antwerp, March 2, 2016

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