In our investment briefing this week, we look at conflict diamonds and ask whether it is possible to be sure the diamond on your finger comes from a ‘clean’ source . The answer is that mostly you can’t be. But a more serious issue for the diamond business is whether you, or anyone else, can tell whether the diamond on your finger is actually a real diamond or not. Again the answer is that mostly you can’t.
Dr Steve Sque of the University of Exeter points out that it is quite easy to distinguish diamond simulants (ie, different materials that happen to look like diamond) from mined diamonds. Real diamonds have thermal and optical properties (“diamond has a very high thermal conductivity, meaning that it is very cold to the touch – hence its nickname of ‘ice’ – whereas most simulants do not”), but synthetic diamonds are a different matter altogether. This is because synthetics are made from exactly the same material as mined diamonds: they aren’t fake diamonds, they are just man-made diamonds. “The only difference is in the history of the material.”
Indeed, these days the only way really to distinguish a mined diamond from a man-made one is to check for impurities: synthetics have less foreign material in them, which rather suggests they might even shine brighter then your average mined diamond. So what does this mean for the diamond industry? A spokesman for Tiffany tells me it means nothing for high-end retailers – Tiffany customers only want the ‘real thing’, and to them that means stones they know are millions of years old. I wonder if he’s right. We buy diamonds for two main reasons: because they are pretty and because De Beers has taught us to think they bring us status. But if synthetics sparkle just as well as old-fashioned diamonds and no one can tell the difference (after all, they are also the ‘real thing’), why would even Tiffany addicts pay more than they have to for their bling?
I don’t expect diamond sales to fall in the near future – the super-rich will ensure they keep rising for some time – but as synthetic diamonds start to appear on the market in volume, I think we should expect to see the ‘real’ diamond sector suffer. If it does, at least the big diamond houses can console themselves with the thought that every synthetic diamond bought in place of a mined one brings the conflict diamond business closer to an end.
Finally, a word on Shell. We’ve been recommending it for some time, and despite its troubles with its Sakhalin-2 project in Russia, we still are. MoneyWeek regular James Ferguson has long been an advocate of investing in Shell and has managed to see the bright side of the firm being strong-armed into ceding control of its project. Shell used to own all of a site that was going to be tied up in red tape forever, says James. Now it doesn’t. But it still has a large part of “a significant project that has the scope to really go somewhere. Which is better?”