Harold and Erica Van Pelt: Courtesy of Kalil Elawar Natural Brazilian alexandrite crystal..

Before the eighteenth century, diamonds came mainly from India, and were extremely rare, especially in Europe. The Indian sources, chiefly the Golconda mines in the Indian province of Hyderabad, were essentially already mined out when diamonds were discovered in Brazil in 1725.19 Diamond exports from Brazil from 1730 to 1787 increased total world diamond supplies as much as twenty-fold. Due to this abundance, between 1730 and 1735 the diamond market went into freefall and rough diamond prices dropped seventy-five percent.20

With the discovery in the late nineteenth century of vast diamond reserves in southern Africa, huge supplies of diamonds began to enter the market. Newer discoveries in Russia, Australia, and, most recently, Canada have kept supply strong. These discoveries, coupled with improvements in prospecting and recovery methods, have created a glut of colorless diamonds.

In 1992 it was estimated that if all diamonds produced by Indian and Brazilian sources from antiquity to that date were totaled, that number would be equal to just twenty-two percent of the total world production of the previous five years.

In fact, the annual production from Australia’s Argyle Mine in the early 1990s was approximately equal to the total amount of diamonds produced in India and Brazil from antiquity to 1869.21 In the past two decades, cut diamond production has increased from fifty million carats (gem quality) to approximately one hundred twenty million carats annually. It is estimated that perhaps eight hundred million cut stones, of all sizes, enter the market every year.

In the case of diamond, an apparent rarity maintaining the price structure is created by high demand coupled with a carefully controlled distribution system. The monopolizing organization, variously called the cartel, the syndicate, or simply DeBeers, took control of the diamond market in 1889.22 Diamonds are not actually rare, but the syndicate (through selective distribution and a careful hoarding of reserves) insures that supply does not exceed demand.23 Thus the price of diamonds, as with all other gems, is based on beauty — plus supply and demand. The difference is that demand for diamonds is mightily stimulated by advertising, and supply is, or at least has been, ruthlessly controlled by the DeBeers cartel.

As the new century dawns, the iron control formerly exercised by DeBeers has begun to slip. In fact, the syndicate claims that it is no longer trying to control the market. New diamond strikes in Australia and northern Canada (which are outside the syndicate’s control) have reduced its influence. From a high of eighty-five percent a decade ago, currently no more than sixty percent of the world’s diamonds pass through the cartel’s hands.24 Thus far, the main effect of this has been a squeezing of wholesale and retail profit margins. What does it bode for the future? Unless new marketing strategies can stimulate demand, the effect of the diamond glut must inevitably lead to lower prices.