The Price of Diamonds

Posted on September 10, 2009
Filed Under Economy |

I have always found that the price of diamonds is really a good indicator of how the US economy is doing. Diamonds are items that most people can forgo during bad times unless you are a jeweler or have industrial uses for them. Because I have a daughter getting married soon and since I have been making jewelry as a hobby for 30 years, most of my family members know to talk to me when they need gems and jewelry. I generally make small buys so my favorite source to buy from is Ebay. I had several very nice wedding sets that I just give to my daughters as they get ready to marry, but I generally like to pick up a nice center diamond for them when we actually size the rings.

I have not bought gemstones for a year or so now as already I have a fair collection that allows me to make items as the urge arises. I started looking at the prices on Ebay in the last few days and frankly I am stunned. Diamonds I would have had to pay $2,000-$3,000 each for a year ago are now selling at the closing price of around $300. Many are listed for less than these one-tenth prices and are going unsold. Perhaps the word “stunned” is an understatement.

My grandfather would tell my of a time in Detroit during the last Great Depression where he met a fellow downtown who was trying to peddle a gold and diamond ring for $5 because his family had no food to eat. After several hours the man gave up, as he could find no buyer. No one had $5 to give him. I am sad to say, those days may have returned.

The Chinese are now making noises of defaulting on Oil derivatives “Although it is unknown how many SOEs had signed oil derivative contracts now, the announcement still had influence on oil market, said a source with one investment bank. Most Chinese enterprises entered into long positions and some with short positions chose to make delivery, wary counter parties could not fulfill contracts, according to the source. The SASAC may just aim to confine big bets of SOEs, considering China Aviation Oil and Shenzhen Nanshan Power’s bet on derivatives.” (http://www.c1energy.com/Common/2325387,0,0,0,2.htm)

As of this morning (Sept. 10, 2009) they have not made good on their threat to default. (http://www.forbes.com/2009/09/08/dollar-euro-imf-markets-currencies-united-nations.html) Should they do so however, I think the bottom will fall-out-of-the-bag resulting in all that brown stuff getting all over our shoes. At the same time the Chinese have been trying to increase their gold holdings.

“Hong Kong is pulling all its physical gold holdings from depositories in London, transferring them to a high-security depository newly built at the city’s airport, in a move that won praise from local traders Thursday. The facility, industry professionals said, would support Hong Kong’s emergence as a Swiss-style trading hub for bullion and would lessen London’s status as a key settlement-and-storage center.”
(http://www.marketwatch.com/story/hong-kong-recalls-gold-reserves-from-london-2009-09-03)

In Hong Kong, the Chinese semi-official Ta Kung Pao reported that the Miao Wei, China’s vice minister of banking during public sessions in Xiamen City in Fujian province on national gold conference, said ‘this year China’s target of gold production is 290 tons; China also plans an additional 800 plus tons of gold reserves to the central treasury to boost gold holdings to 2400 tons. In addition, the government will encourage mergers and acquisitions of gold, and gold industries top 10 companies accounted for the production and control of over 50% of the entire industry. Last year China’s total gold holding was around 840 tons.

Gold is something you can use to hold wealth. Diamonds are useless bits of shiny carbon despite the efforts and marketing of the De Beers monopoly. The nice thing about Ebay is it usually is a good measure of street prices of commodities. I think few things measures our true economic status as the actual prices of diamonds. Based on what I am seeing today, we are much worse off here in the USA than the pundits and talking heads are telling us. If the Chinese actually default on these derivatives as they are threatening to do, I think we will once again see people selling diamond rings for $5 in order to buy food.

Clayton

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