I have not been in the Tiffany store in London’s Sloane Street since its launch party a few years ago. After a chat with a member of the senior management, who told me that it didn’t really matter to their profits how much the silver price went up because the price of a Tiffany product is based not its cost but its “prestige”, I wrote an article complaining about the company’s high mark-ups. I assumed I wouldn’t be particularly welcome again.
However, it seems the people at Tiffany are either gracious enough not to bear grudges, or they don’t have a very effective black-list system. This week I was invited back for another champagne and canape reception.
The jewellery gazing was fun (some Tiffany designs are as beautiful as others are hideous) but by the time we got to the end of the talk that accompanied it, I was just as irritated as I had been the last time I was in the store.
Why, asked the speaker to kick things off, do we use diamonds to commemorate special occasions? She then offered three options — because they are rare, because they endure forever and because of their “legendary beauty” and sparkle.
You may wonder what is so irritating about that. I’ll tell you. It is that the real answer is none of these things. We buy diamonds on special occasions because De Beers, which still dominates the diamond market, tells us we should.
De Beers has the most amazing marketing department I have ever come across. It invented the slogan “a diamond is forever” and somehow persuaded us that diamonds are some kind of ancient symbol of love. It made us believe all engagements must be marked by a diamond worth four months’ salary. It invented the concept of the eternity ring — apparently to use up their glut of small stones. And it has created the rather odd link in our minds between diamonds and status.
The fact is, whatever the likes of Tiffany and De Beers would like you to think, diamonds aren’t that rare. If they are, how come everybody has got at least one and you can buy diamond necklaces from the back pages of magazines for 12 monthly instalments of £9.99? And, while diamonds do indeed endure for ever, their legendary beauty is hardly unique: study after study has proved that even the most pompous of gem experts can’t tell a good fake from the real thing.
Still, none of these bits of reality seems to be having a dampening effect on the market. Demand for diamonds has been rising fast, and as is the case with most commodities these days, the supply has not been there to meet it: demand has exceeded mined supply for the past two years and most analysts forecast that will continue. The result? Prices for rough diamonds are on the up.
Think about all this and it makes sense. Not only is the middle class fast expanding around the world, creating a vast new market for the 0.5 carat engagement rings cynically churned out by the retail jewellery industry at vast mark-ups, but the ranks of the super rich are rising exponentially.
There are nearly 800 dollar billionaires in the world today against a mere 439 three years ago and UBS, the investment bank, estimates the wealth of high net worth individuals across the globe at more than the market capitalisations of America, Britain, Japan, Germany and France combined.
And what do the super rich really love? Yes, diamonds.
At the Millionaire Fair in Moscow last month there was a $1.3m diamond-encrusted mobile phone for sale. In the US you can spend a similar amount on diamond wheel trims for your Bentley. The world’s luxury goods magazines would have you believe that it is just wrong to buy a watch that isn’t studded with diamonds, and we are even told that there is now a market for diamond-covered iPods.
I stand by my claim that diamonds aren’t rare, but at this rate of usage the world’s status-conscious consumer may just manage to make them scarce enough to keep the price rising. Analyst James Picton of WH Ireland forecasts that it will be 30 per cent higher in six years.
There are several ways to invest in the diamond boom. You could buy shares in Tiffany itself or in the likes of Richemont, a luxury-goods group that owns a couple of jewellery brands and takes advantage of their fabulous mark-ups. Never forget that any jewellery bought in the shops drops in value by about 50 per cent as soon as you leave the shop.
Alternatively, you could go right to the source and look at shares in diamonds mines. In Britain, there are several possibilities listed on the Alternative Investment Market, including Firestone, Petra and Brazilian Diamonds. I’ve suggested these before and must point out that they are all small and very volatile, so you might be better off getting your exposure through a bigger producer such as Canada-listed Aber Diamond or Newmont Mining, the world’s largest gold miner, which has recently taken a large stake in a Canadian diamond-mining company.
First published in The Sunday Times, (19/11/06)