DIAMONDS AREN'T RARE

[spectre]

http://spectrevision.net/2012/09/21/diamonds-arent-rare/ ‎

'IMPACT DIAMONDS'
http://io9.com/5944142/russia-admits-to-having-trillions-of-carats-worth-of-diamonds-hidden-in-an-asteroid-crater
Russia admits to ‘trillions of carats’ worth of diamonds hidden in
asteroid crater
by George Dvorsky / Sep 18, 2012

Back in the 1970s, the Soviet government discovered a rather
remarkable deposit of precious gems in a 100 kilometer (62 mile)
crater located in eastern Siberia. Called the Popigai crypto-explosion
structure, it contains "impact diamonds" — massive mineral deposits
that formed when an asteroid hit the area 35-million years ago. The
Russians have kept it a secret all this time, but recently
declassified documents now reveal the true extent of the hoard — a
cache of diamonds that could supply global markets for another 3,000
years.

Impact diamonds are formed when an asteroid strikes an area rich in
graphite deposits. The resulting super-dense minerals are twice as
hard as regular diamonds and feature a large grain size. Diamonds like
these are highly valued not just for their aesthetic qualities, but
also for their use in high-precision scientific and industrial
processes (applications like metalworking, the production of efficient
semiconductors, and so on). And according to the ITAR-TASS Russian
News Agency, the Russians chose to keep it a secret because of its pre-
existing diamond operations at Mirny, Yakutia. By doing so, the Soviet
government (and now the Russian Federation) was able to reap
tremendous profits in an otherwise tightly controlled world market
(nice, eh?). Moreover, it was also at this time that the Soviet
government started to build plants that produced synthetic diamonds.
In turn, they stopped all geological studies and all data on the field
became classified.

The Russian government finally let the world in on their little secret
at a recently concluded scientific conference in Novosibirsk — an
acknowledgement that's sure to send shock waves through the global gem
markets. Speaking to TASS, Russian geologist Nikolai Pokhilenko
admitted that, "the first results of research were sufficient to talk
about a possible overturn of the entire world market of diamonds." And
indeed, the deposit of super-hard diamonds contained in rocks of the
Popigai crypto-explosion structure is massive — about trillions of
carats. This is ten times the amount found in Yakutia. Moreover, this
extraterrestrial diamond deposit is the only one in the world. By
virtue of this unique cache, Russia now has a monopoly on what will
surely be a very sought after resource. And indeed, geologists say
there is enough raw material in the crater to supply global demand for
centuries to come.


DECLASSIFIED
http://www.passc.net/EarthImpactDatabase/popigai.html
http://siberiantimes.com/science/casestudy/news/enough-diamonds-to-keep-the-world-glittering-for-3000-years/
http://pda.itar-tass.com/en/c154/521362.html%20
Russia declassifies deposit of impact diamonds / 16/09/2012

Novosibirsk, September 16 (Itar-Tass) — Russia has declassified a
large deposit of super hard diamonds which are twice harder than usual
ones. The sensational statement was made by Novosibirsk scientists of
the Institute of Geology and Mineralogy at the Siberian Branch of the
Russian Academy of Sciences. The deposit is located on the border of
the Krasnoyarsk region and Yakutia in the Popigai crypto-explosion
structure- a hundred kilometres’ meteorite crater formed 35 million
years ago. Back in the 1970s, Soviet geologists discovered there the
first extra hard "diamonds" - impact diamonds having unusual features.
They were two times harder than regular ones and had a different
structure. But due to the fact that at that time the government
decided to develop construction of plants to produce synthetic
diamonds, any studies stopped, and data on the field were classified.
After the declassification, geologists were able to return to studies
of this mineral. And the changed economic demands made impact diamonds
extremely popular material because of their unusual properties.

Director of the Institute of Geology and Mineralogy at the Siberian
Branch of the Russian Academy of Sciences Academician Nikolai
Pokhilenko said "the first results of research were sufficient to talk
about a possible overturn of the entire world market of diamonds."
"The resources of super-hard diamonds contained in rocks of the
Popigai crypto-explosion structure, are by a factor of ten bigger than
the world's all known reserves. We are speaking about trillions of
carats, for comparison – present-day known reserves in Yakutia are
estimated at one billion carats," he said. Deputy Director of the
Yakutnipromalmaz Institute Gennady Nikitin warns: "The Popigai
diamonds can overturn everything, and is not clear what will happen to
prices in the market." According to Academician Pokhilenko, "the value
of impact diamonds is added by their unusual abrasive features and
large grain size." "This expands significantly the scope of their
industrial use and makes them more valuable for industrial purposes /
in metalworking, in production of efficient semiconductors, etc./," he
said.

In addition, as yet, impact diamonds with similar specifications have
not been discovered anywhere else in the world. Thus, experts speak
about their extraterrestrial origin and claim that Russia becomes a
monopoly owner of unlimited supplies of this unique raw material,
which is of highly demand in advanced technologies. Scientists
forecast, this raw material reserves "would be enough for the entire
world for 3.000 years." Use of these minerals in the manufacturing
industry is capable of a technical revolution. Many major corporations
have big interest for this raw material. This was stated during a
roundtable "New Economy - New Materials", which was organised during
the Interra-2012 Forum in Novosibirsk.


INDUSTRIAL USE
http://adsabs.harvard.edu/abs/1995Metic..30Q.515G
http://www.nationaljeweler.com/nj/diamonds/a/~29521-Alrosa-Mining-unlikely-for-huge
Alrosa: Mining unlikely for huge Russian deposit / SEP 20, 2012

Moscow--Russian mining giant Alrosa has confirmed reports that there
is a large previously unannounced deposit of industrial diamonds in
Siberia, but says that the find is not necessarily financially
feasible for mining. National Jeweler contacted Alrosa on Tuesday
after reports surfaced of the Russian government declassifying
information on “trillions of carats” of diamonds discovered beneath a
35-million-year-old asteroid crater called Popigai Astroblem in
eastern Siberia. According to a blog by the Christian Science Monitor,
the diamond field had been discovered in the 1970s but was kept under
wraps because the country’s other diamond operations were already
profitable in a market that was tightly controlled at the time. CSM
also reported that the find was so vast that it could supply the world
for another 3,000 years with diamonds that are “twice as hard” as
normal diamonds, and would “shake world gem markets to their core.”

In email to National Jeweler, an Alrosa spokeswoman verified that this
so-called impact deposit does exist and was indeed discovered in the
1970s. She notes, however, that the diamonds are not gem quality and
there is no connection with the jewelry business. While the diamonds
probably could be used for industrial purposes, it likely wouldn’t be
a profitable venture, given the remote location of the find and the
ability to grow diamonds for industrial uses. “There are a lot of
synthetic technical diamond producers in the market so the market
demand for additional volumes of technical diamonds should be
examined,” the spokesperson wrote. “Besides, it is not kimberlite row,
hard to extract and located in a territory with no infrastructure, so
this is also a question of mining technologies and profitability.”


DIAMOND MARKET about to COLLAPSE?
http://www.reddit.com/r/offbeat/comments/105748/russian_crater_diamonds_worth_1_quadrillion/c6aki5i
http://www.reddit.com/r/worldnews/comments/1015r4/russia_has_just_declassified_news_that_will_shake/c69iip4
http://www.forbes.com/sites/timworstall/2012/09/18/is-the-diamond-market-about-to-collapse-over-huge-russian-find/
by Tim Worstall / 9/18/2012

"I have some knowledge of how these sorts of announcements from Russia
go. There’s often a slight disconnect between the profit that can be
made from some mineral resource and the value assigned to that mineral
resource. I have a feeling that this might apply to this announcement
of a huge diamond field in Russia. I wouldn’t doubt at all that there
are the reported trillions of carats of diamonds in that asteroid
impact crater. Such impacts are a known cause of diamonds forming
after all. However, I am a great deal less convinced that the find
will be of any value: or that it will ever be mined.

For the value of any mineral deposit is not the value of the minerals
in it. It’s the value of those minerals minus the cost of extracting
them. With gemstone diamonds this doesn’t usually matter: the value is
so high that almost any mining technique is profitable. But these
aren’t gemstone diamonds. We have an entirely acceptable substitute
for natural industrial diamonds: lab grown industrial diamonds. And we
almost always find that the lab grown ones, the artificial ones, are
cheaper than the mined ones.

Indeed, as a rough sketch, not a wholly accurate one but one that’s
good enough, no one actually does go mining for industrial diamonds.
You go mining for gemstone ones and those that you find which are not
up to grade are sold as industrial ones. At prices that don’t cover
their mining costs: the whole exercise is only made profitable by the
much higher prices received for gemstone quality. So I don’t doubt
that there is a huge deposit of industrial diamonds there. What I do
doubt is whether anyone will ever bother to go and dig them up. When
we can make diamond powders in labs simply enough, why bother trying
to build a vast mine in Northern Siberia, one of the most inhospitable
places on the planet?"


DIAMOND STOCKPILES
http://experts.foreignpolicy.com/posts/2009/05/19/forever_complicated
Russia's diamond stockpile is sucking the country dry. But dumping the
stones would be even worse
by Russell Shor / May 19, 2009

There is a tale, apocryphal or not, of a 1960s plan by the Soviets to
disrupt South Africa's largest diamond firm, De Beers, by manipulating
the world diamond market with their own native supply. The plan
proceeded apace until someone in the government realized that Soviet
diamond mines supplied about a quarter of De Beers's rough diamond
sales. Needless to say, if the plan was ever real, it backfired.
Regardless of that story's veracity, one lesson from it is certainly
true: Along with oil and natural gas, diamonds are another homegrown
commodity that Russia has managed through politics (rather than good
business sense) to varying degrees of failure. Most recently, the New
York Times reported on May 11 that Russia's diamond mining and
marketing arm, Alrosa, began stockpiling rough diamonds with the
government instead of selling them into a falling market. So large is
the cache -- an estimated 34 million carats of yearly mine production
worth some $2.8 billion, or one sixth of the world total -- that
"Russia has become the arbiter of global diamond prices," the Times
reports.

So what does Russia want with the stones?
First, a bit of history. Beginning in 1959, Russia began selling all
of its rough diamonds to De Beers in a not-so-secret arrangement that
left a loophole allowing for 20 percent to be cut locally and sold on
world markets. That 20 percent proved infinitely elastic over the
years (20 percent of a secret quantity is how much?), and there were
times during the 1980s and 1990s when Russia was so overzealous that
it flooded the market, even to the point of undermining the price for
its own stones. If the goal was to control the market, it worked;
Russia drove diamond prices straight into the ground. The economic
rationale for hoarding looks, at first glance, to be spot on. As the
world economy sank last fall, diamond cutters and dealers were
appealing to mining companies to slow or suspend production because
their customers were fleeing and banks were pulling out. Two big
producers did just that. De Beers mothballed its Botswana mining
operations, and Rio Tinto cut its diamond production 40 percent.
Alrosa was merely following suit.

But in Russia, diamonds are forever more complicated than that. Unlike
De Beers and Rio Tinto, which responded to the slowdown by halting
their mining activities, Alrosa's strategy has been to sell the stones
to Gokhran, the Russian government's stockpiling agency. True, there
is good reason to cut diamond supply and push prices back up. But
Russia literally cannot afford to do so for too long. The country's
credit rating is faltering, and even at a depressed world market
price, a diamond buying spree would cost the government a massive $220
million each month. Even worse for the Kremlin, there is more than
money involved. Sakha republic, the semiautonomous region where the
mines are located, has a nearly 50 percent stake in Alrosa, meaning
that its government receives that share of the profit from sales to
Gokhran. Giving Sakha a boost is the last thing Moscow wants to do.
Along with Chechnya and a few other areas, Sakha has a semiautonomous
clause in its Constitution that has Moscow perennially worried about
secessionist fervor.

In short, Russia's diamonds are being held by a government that can
afford neither to sell them nor to buy many more -- particularly if
nearly half of Alrosa's proceeds keep going to Sakha. It's the kind of
conundrum that only luck can fix -- and it just might. Diamond
cutters, who weren't buying anything in March and April, now say they
are back in the market for rough stones of the Russian sort. Shoppers
are returning to jewelry stores. Large diamond operations, especially
those in India, have cut the padlocks from their compounds and called
workers back. Banks are lending again, albeit at reduced levels. On
May 12, Alrosa announced an agreement with 15 Antwerp rough-diamond
dealers to sell $500 million worth of goods by year's end. So, if the
recovery is for real, the Russian government may profit from its
stockpile. If things slide again, the diamond industry has to hope
that the Russian government has enough money, and enough trust in
Sakha, to keep buying.


the DIAMOND CARTEL
http://www.edwardjayepstein.com/diamond.htm
An unruly market may undo the work of a giant cartel and of an
inspired, decades-long ad campaign
by Edward Jay Epstein /

The diamond invention -- the creation of the idea that diamonds are
rare and valuable, and are essential signs of esteem -- is a
relatively recent development in the history of the diamond trade.
Until the late nineteenth century, diamonds were found only in a few
riverbeds in India and in the jungles of Brazil, and the entire world
production of gem diamonds amounted to a few pounds a year. In 1870,
however, huge diamond mines were discovered near the Orange River, in
South Africa, where diamonds were soon being scooped out by the ton.
Suddenly, the market was deluged with diamonds. The British financiers
who had organized the South African mines quickly realized that their
investment was endangered; diamonds had little intrinsic value -- and
their price depended almost entirely on their scarcity. The financiers
feared that when new mines were developed in South Africa, diamonds
would become at best only semiprecious gems.

The major investors in the diamond mines realized that they had no
alternative but to merge their interests into a single entity that
would be powerful enough to control production and perpetuate the
illusion of scarcity of diamonds. The instrument they created, in
1888, was called De Beers Consolidated Mines, Ltd., incorporated in
South Africa. As De Beers took control of all aspects of the world
diamond trade, it assumed many forms. In London, it operated under the
innocuous name of the Diamond Trading Company. In Israel, it was known
as "The Syndicate." In Europe, it was called the "C.S.O." -- initials
referring to the Central Selling Organization, which was an arm of the
Diamond Trading Company. And in black Africa, it disguised its South
African origins under subsidiaries with names like Diamond Development
Corporation and Mining Services, Inc. At its height -- for most of
this century -- it not only either directly owned or controlled all
the diamond mines in southern Africa but also owned diamond trading
companies in England, Portugal, Israel, Belgium, Holland, and
Switzerland.

De Beers proved to be the most successful cartel arrangement in the
annals of modern commerce. While other commodities, such as gold,
silver, copper, rubber, and grains, fluctuated wildly in response to
economic conditions, diamonds have continued, with few exceptions, to
advance upward in price every year since the Depression. Indeed, the
cartel seemed so superbly in control of prices -- and unassailable --
that, in the late 1970s, even speculators began buying diamonds as a
guard against the vagaries of inflation and recession. The diamond
invention is far more than a monopoly for fixing diamond prices; it is
a mechanism for converting tiny crystals of carbon into universally
recognized tokens of wealth, power, and romance. To achieve this goal,
De Beers had to control demand as well as supply. Both women and men
had to be made to perceive diamonds not as marketable precious stones
but as an inseparable part of courtship and married life. To stabilize
the market, De Beers had to endow these stones with a sentiment that
would inhibit the public from ever reselling them. The illusion had to
be created that diamonds were forever -- "forever" in the sense that
they should never be resold.

In September of 1938, Harry Oppenheimer, son of the founder of De
Beers and then twenty-nine, traveled from Johannesburg to New York
City, to meet with Gerold M. Lauck, the president of N. W. Ayer, a
leading advertising agency in the United States. Lauck and N. W. Ayer
had been recommended to Oppenheimer by the Morgan Bank, which had
helped his father consolidate the De Beers financial empire. His
bankers were concerned about the price of diamonds, which had declined
worldwide.

In Europe, where diamond prices had collapsed during the Depression,
there seemed little possibility of restoring public confidence in
diamonds. In Germany, Austria, Italy, and Spain, the notion of giving
a diamond ring to commemorate an engagement had never taken hold. In
England and France, diamonds were still presumed to be jewels for
aristocrats rather than the masses. Furthermore, Europe was on the
verge of war, and there seemed little possibility of expanding diamond
sales. This left the United States as the only real market for De
Beers's diamonds. In fact, in 1938 some three quarters of all the
cartel's diamonds were sold for engagement rings in the United States.
Most of these stones, however, were smaller and of poorer quality than
those bought in Europe, and had an average price of $80 apiece.
Oppenheimer and the bankers believed that an advertising campaign
could persuade Americans to buy more expensive diamonds.

Oppenheimer suggested to Lauck that his agency prepare a plan for
creating a new image for diamonds among Americans. He assured Lauck
that De Beers had not called on any other American advertising agency
with this proposal, and that if the plan met with his father's
approval, N. W. Ayer would be the exclusive agents for the placement
of newspaper and radio advertisements in the United States.
Oppenheimer agreed to underwrite the costs of the research necessary
for developing the campaign. Lauck instantly accepted the offer.

In their subsequent investigation of the American diamond market, the
staff of N. W. Ayer found that since the end of World War I, in 1919,
the total amount of diamonds sold in America, measured in carats, had
declined by 50 percent; at the same time, the quality of the diamonds,
measured in dollar value, had declined by nearly 100 percent. An Ayer
memo concluded that the depressed state of the market for diamonds was
"the result of the economy, changes in social attitudes and the
promotion of competitive luxuries."

Although it could do little about the state of the economy, N. W. Ayer
suggested that through a well-orchestrated advertising and public-
relations campaign it could have a significant impact on the "social
attitudes of the public at large and thereby channel American spending
toward larger and more expensive diamonds instead of "competitive
luxuries." Specifically, the Ayer study stressed the need to
strengthen the association in the public's mind of diamonds with
romance. Since "young men buy over 90% of all engagement rings" it
would be crucial to inculcate in them the idea that diamonds were a
gift of love: the larger and finer the diamond, the greater the
expression of love. Similarly, young women had to be encouraged to
view diamonds as an integral part of any romantic courtship.

Since the Ayer plan to romanticize diamonds required subtly altering
the public's picture of the way a man courts -- and wins -- a woman,
the advertising agency strongly suggested exploiting the relatively
new medium of motion pictures. Movie idols, the paragons of romance
for the mass audience, would be given diamonds to use as their symbols
of indestructible love.

In addition, the agency suggested offering stories and society
photographs to selected magazines and newspapers which would reinforce
the link between diamonds and romance. Stories would stress the size
of diamonds that celebrities presented to their loved ones, and
photographs would conspicuously show the glittering stone on the hand
of a well-known woman. Fashion designers would talk on radio programs
about the "trend towards diamonds" that Ayer planned to start. The
Ayer plan also envisioned using the British royal family to help
foster the romantic allure of diamonds. An Ayer memo said, "Since
Great Britain has such an important interest in the diamond industry,
the royal couple could be of tremendous assistance to this British
industry by wearing diamonds rather than other jewels." Queen
Elizabeth later went on a well-publicized trip to several South
African diamond mines, and she accepted a diamond from Oppenheimer.

In addition to putting these plans into action, N. W. Ayer placed a
series of lush four-color advertisements in magazines that were
presumed to mold elite opinion, featuring reproductions of famous
paintings by such artists as Picasso, Derain, Dali, and Dufy. The
advertisements were intended to convey the idea that diamonds, like
paintings, were unique works of art.

BY 1941, The advertising agency reported to its client that it had
already achieved impressive results in its campaign. The sale of
diamonds had increased by 55 percent in the United States since 1938,
reversing the previous downward trend in retail sales. N. W. Ayer
noted also that its campaign had required "the conception of a new
form of advertising which has been widely imitated ever since. There
was no direct sale to be made. There was no brand name to be impressed
on the public mind. There was simply an idea -- the eternal emotional
value surrounding the diamond." It further claimed that "a new type of
art was devised ... and a new color, diamond blue, was created and
used in these campaigns.... "

In its 1947 strategy plan, the advertising agency strongly emphasized
a psychological approach. "We are dealing with a problem in mass
psychology. We seek to ... strengthen the tradition of the diamond
engagement ring -- to make it a psychological necessity capable of
competing successfully at the retail level with utility goods and
services...." It defined as its target audience "some 70 million
people 15 years and over whose opinion we hope to influence in support
of our objectives." N. W. Ayer outlined a subtle program that included
arranging for lecturers to visit high schools across the country. "All
of these lectures revolve around the diamond engagement ring, and are
reaching thousands of girls in their assemblies, classes and informal
meetings in our leading educational institutions," the agency
explained in a memorandum to De Beers. The agency had organized, in
1946, a weekly service called "Hollywood Personalities," which
provided 125 leading newspapers with descriptions of the diamonds worn
by movie stars. And it continued its efforts to encourage news
coverage of celebrities displaying diamond rings as symbols of
romantic involvement.In 1947, the agency commissioned a series of
portraits of "engaged socialites." The idea was to create prestigious
"role models" for the poorer middle-class wage-earners. The
advertising agency explained, in its 1948 strategy paper, "We spread
the word of diamonds worn by stars of screen and stage, by wives and
daughters of political leaders, by any woman who can make the grocer's
wife and the mechanic's sweetheart say 'I wish I had what she has.'"

De Beers needed a slogan for diamonds that expressed both the theme of
romance and legitimacy. An N. W. Ayer copywriter came up with the
caption "A Diamond Is Forever," which was scrawled on the bottom of a
picture of two young lovers on a honeymoon. Even though diamonds can
in fact be shattered, chipped, discolored, or incinerated to ash, the
concept of eternity perfectly captured the magical qualities that the
advertising agency wanted to attribute to diamonds. Within a year, "A
Diamond Is Forever" became the official motto of De Beers.

In 1951, N. W. Ayer found some resistance to its million-dollar
publicity blitz. It noted in its annual strategy review:

The millions of brides and brides-to-be are subjected to at least two
important pressures that work against the diamond engagement ring.
Among the more prosperous, there is the sophisticated urge to be
different as a means of being smart.... the lower-income groups would
like to show more for the money than they can find in the diamond they
can afford....

To remedy these problems, the advertising agency argued, "It is
essential that these pressures be met by the constant publicity to
show that only the diamond is everywhere accepted and recognized as
the symbol of betrothal."

N. W. Ayer was always searching for new ways to influence American
public opinion. Not only did it organize a service to "release to the
women's pages the engagement ring" but it set about exploiting the
relatively new medium of television by arranging for actresses and
other celebrities to wear diamonds when they appeared before the
camera. It also established a "Diamond Information Center" that placed
a stamp of quasi-authority on the flood of "historical" data and
"news" it released. "We work hard to keep ourselves known throughout
the publishing world as the source of information on diamonds," N. W.
Ayer commented in a memorandum to De Beers, and added: "Because we
have done it successfully, we have opportunities to help with articles
originated by others."

N. W. Ayer proposed to apply to the diamond market Thorstein Veblen's
idea, stated in The Theory of the Leisure Class, that Americns were
motivated in their purchases not by utility but by "conspicuous
consumption." "The substantial diamond gift can be made a more widely
sought symbol of personal and family success -- an expression of socio-
economic achievement," N. W. Ayer said in a report. To exploit this
desire for conspicuous display, the agency specifically recommended,
"Promote the diamond as one material object which can reflect, in a
very personal way, a man's ... success in life." Since this campaign
would be addressed to upwardly mobile men, the advertisements ideally
"should have the aroma of tweed, old leather and polished wood which
is characteristic of a good club."

Toward the end of the 1950s, N. W. Ayer reported to De Beers that
twenty years of advertisements and publicity had had a pronounced
effect on the American psyche. "Since 1939 an entirely new generation
of young people has grown to marriageable age," it said. "To this new
generation a diamond ring is considered a necessity to engagements by
virtually everyone." The message had been so successfully impressed on
the minds of this generation that those who could not afford to buy a
diamond at the time of their marriage would "defer the purchase"
rather than forgo it.

THE campaign to internationalize the diamond invention began in
earnest in the mid-1960s. The prime targets were Japan, Germany, zand
Brazil. Since N. W. Ayer was primarily an American advertising agency,
De Beers brought in the J. Walter Thompson agency, which had
especially strong advertising subsidiaries in the target countries, to
place most of its international advertising. Within ten years, De
Beers succeeded beyond even its most optimistic expectations, creating
a billion-dollar-a-year diamond market in Japan, where matrimonial
custom had survived feudal revolutions, world wars, industrialization,
and even the American occupation.

Until the mid-1960s, Japanese parents arranged marriages for their
children through trusted intermediaries. The ceremony was consummated,
according to Shinto law, by the bride and groom drinking rice wine
from the same wooden bowl. There was no tradition of romance,
courtship, seduction, or prenuptial love in Japan; and none that
required the gift of a diamond engagement ring. Even the fact that
millions of American soldiers had been assigned to military duty in
Japan for a decade had not created any substantial Japanese interest
in giving diamonds as a token of love.

J. Walter Thompson began its campaign by suggesting that diamonds were
a visible sign of modern Western values. It created a series of color
advertisements in Japanese magazines showing beautiful women
displaying their diamond rings. All the women had Western facial
features and wore European clothes. Moreover, the women in most of the
advertisements were involved in some activity -- such as bicycling,
camping, yachting, ocean swimming, or mountain climbing -- that defied
Japanese traditions. In the background, there usually stood a Japanese
man, also attired in fashionable European clothes. In addition, almost
all of the automobiles, sporting equipment, and other artifacts in the
picture were conspicuous foreign imports. The message was clear:
diamonds represent a sharp break with the Oriental past and a sign of
entry into modern life.

The campaign was remarkably successful. Until1959, the importation of
diamonds had not even been permitted by the postwar Japanese
government. When the campaign began, in 1967, not quite 5 percent of
engaged Japanese women received a diamond engagement ring. By 1972,
the proportion had risen to 27 percent. By 1978, half of all Japanese
women who were married wore a diamond; by 1981, some 60 percent of
Japanese brides wore diamonds. In a mere fourteen years, the 1,500-
year Japanese tradition had been radically revised. Diamonds became a
staple of the Japanese marriage. Japan became the second largest
market, after the United States, for the sale of diamond engagement
rings.

In America, which remained the most important market for most of De
Beer's diamonds, N. W. Ayer recognized the need to create a new
demaind for diamonds among long-married couples. "Candies come,
flowers come, furs come," but such ephemeral gifts fail to satisfy a
woman's psychological craving for "a renewal of the romance," N. W.
Ayer said in a report. An advertising campaign could instill the idea
that the gift of a second diamond, in the later years of marriage,
would be accepted as a sign of "ever-growing love." In 1962, N. W.
Ayer asked for authorization to "begin the long-term process of
setting the diamond aside as the only appropriate gift for those later-
in-life occasions where sentiment is to be expressed." De Beers
immediately approved the campaign.

The diamond market had to be further restructured in the mid-1960s to
accomodate a surfeit of minute diamonds, which De Beers undertook to
market for the Soviets. They had discovered diamond mines in Siberia,
after intensive exploration, in the late 1950s: De Beers and its
allies no longer controlled the diamond supply, and realized that open
competition with the Soviets would inevitably lead, as Harry
Oppenheimer gingerly put it, to "price fluctuations,"which would
weaken the carefully cultivated confidence of the public in the value
of diamonds. Oppenheimer, assuming that neither party could afford
risking the destruction of the diamond invention, offered the Soviets
a straightforward deal -- "a single channel" for controlling the world
supply of diamonds. In accepting this arrangement, the Soviets became
partners in the cartel, and co-protectors of the diamond invention.

Almost all of the Soviet diamonds were under half a carat in their
uncut form, and there was no ready retail outlet for millions of such
tiny diamonds. When it made its secret deal with the Soviet Union, De
Beers had expected production from the Siberian mines to decrease
gradually. Instead, production accelerated at an incredible pace, and
De Beers was forced to reconsider its sales strategy. De Beers ordered
N. W. Ayer to reverse one of its themes: women were no longer to be
led to equate the status and emotional commitment to an engagement
with the sheer size of the diamond. A "strategy for small diamond
sales" was outlined, stressing the "importance of quality, color and
cut" over size. Pictures of "one quarter carat" rings would replace
pictures of "up to 2 carat" rings. Moreover, the advertising agency
began in its international campaign to "illustrate gems as small as
one-tenth of a carat and give them the same emotional importance as
larger stones." The news releases also made clear that women should
think of diamonds, regardless of size, as objects of perfection: a
small diamond could be as perfect as a large diamond.

DeBeers devised the "eternity ring," made up of as many as twenty-five
tiny Soviet diamonds, which could be sold to an entirely new market of
older married women. The advertising campaign was based on the theme
of recaptured love. Again, sentiments were born out of necessity:
older American women received a ring of miniature diamonds because of
the needs of a South African corporation to accommodate the Soviet
Union.

The new campaign met with considerable success. The average size of
diamonds sold fell from one carat in 1939 to .28 of a carat in 1976,
which coincided almost exactly with the average size of the Siberian
diamonds De Beers was distributing. However, as American consumers
became accustomed to the idea of buying smaller diamonds, they began
to perceive larger diamonds as ostentatious. By the mid-1970s, the
advertising campaign for smaller diamonds was beginning to seem too
successful. In its 1978 strategy report, N. W. Ayer said, "a supply
problem has developed ... that has had a significant effect on diamond
pricing" -- a problem caused by the long-term campaign to stimulate
the sale of small diamonds. "Owing to successful pricing, distribution
and advertising policies over the last 16 years, demand for small
diamonds now appears to have significantly exceeded supply even though
supply, in absolute terms, has been increasing steadily." Whereas
there was not a sufficient supply of small diamonds to meet the
demands of consumers, N. W. Ayer reported that "large stone sales (1
carat and up) ... have maintained the sluggish pace of the last three
years." Because of this, the memorandum continued, "large stones are
being .. discounted by as much as 20%."

The shortage of small diamonds proved temporary. As Soviet diamonds
continued to flow into London at an ever-increasing rate, De Beers's
strategists came to the conclusion that this production could not be
entirely absorbed by "eternity rings" or other new concepts in
jewelry, and began looking for markets for miniature diamonds outside
the United States. Even though De Beers had met with enormous success
in creating an instant diamond "tradition" in Japan, it was unable to
create a similar tradition in Brazil, Germany, Austria, or Italy. By
paying the high cost involved in absorbing this flood of Soviet
diamonds each year, De Beers prevented -- at least temporarily -- the
Soviet Union from taking any precipitous actions that might cause
diamonds to start glutting the market. N. W. Ayer argued that "small
stone jewelry advertising" could not be totally abandoned: "Serious
trade relationship problems would ensue if, after15 years of stressing
'affordable' small stone jewelry, we were to drop all of these
programs."

Instead, the agency suggested a change in emphasis in presenting
diamonds to the American public. In the advertisements to appear in
1978, it planned to substitute photographs of one-carat-and-over
stones for photographs of smaller diamonds, and to resume both an
"informative advertising campaign" and an "emotive program" that would
serve to "reorient consumer tastes and price perspectives towards
acceptance of solitaire [single-stone] jewelry rather than multi-stone
pieces." Other "strategic refinements" it recommended were designed to
restore the status of the large diamond. "In fact, this [campaign]
will be the exact opposite of the small stone informative program that
ran from 1965 to 1970 that popularized the 'beauty in miniature'
concept...." With an advertising budget of some $9.69 million, N. W.
Ayer appeared confident that it could bring about this
"reorientation."

N. W. Ayer learned from an opinion poll it commissioned from the firm
of Daniel Yankelovich, Inc. that the gift of a diamond contained an
important element of surprise. "Approximately half of all diamond
jewelry that the men have given and the women have received were given
with zero participation or knowledge on the part of the woman
recipient," the study pointed out. N. W Ayer analyzed this "surprise
factor":

Women are in unanimous agreement that they want to be surprised with
gifts.... They want, of course, to be surprised for the thrill of it.
However, a deeper, more important reason lies behind this desire....
"freedom from guilt." Some of the women pointed out that if their
husbands enlisted their help in purchasing a gift (like diamond
jewelry), their practical nature would come to the fore and they would
be compelled to object to the purchase.

Women were not totally surprised by diamond gifts: some 84 percent of
the men in the study "knew somehow" that the women wanted diamond
jewelry. The study suggested a two-step "gift-process continuum":
first, "the man 'learns' diamonds are o.k." fom the woman; then, "at
some later point in time, he makes the diamond purchase decision" to
surprise the woman.

Through a series of "projective" psychological questions, meant "to
draw out a respondent's innermost feelings about diamond jewelry," the
study attempted to examine further the semi-passive role played by
women in receiving diamonds. The male-female roles seemed to resemble
closely the sex relations in a Victorian novel. "Man plays the
dominant, active role in the gift process. Woman's role is more
subtle, more oblique, more enigmatic...." The woman seemed to believe
there was something improper about receiving a diamond gift. Women
spoke in interviews about large diamonds as "flashy, gaudy, overdone"
and otherwise inappropriate. Yet the study found that "Buried in the
negative attitudes ... lies what is probably the primary driving force
for acquiring them. Diamonds are a traditional and conspicuous signal
of achievement, status and success." It noted, for example, "A woman
can easily feel that diamonds are 'vulgar' and still be highly
enthusiastic about receiving diamond jewelry." The element of
surprise, even if it is feigned, plays the same role of accommodating
dissonance in accepting a diamond gift as it does in prime sexual
seductions: it permits the woman to pretend that she has not actively
participated in the decision. She thus retains both her innocence --
and the diamond.

For advertising diamonds in the late 1970s, the implications of this
research were clear. To induce men to buy diamonds for women,
advertising should focus on the emotional impact of the "surprise"
gift transaction. In the final analysis, a man was moved to part with
earnings not by the value, aesthetics, or tradition of diamonds but by
the expectation that a "gift of love" would enhance his standing in
the eyes of a woman. On the other hand, a woman accepted the gift as a
tangible symbol of her status and achievements.

By 1979, N. W. Ayer had helped De Beers expand its sales of diamonds
in the United States to more than $2.1 billion, at the wholesale
level, compared with a mere $23 million in 1939. In forty years, the
value of its sales had increased nearly a hundredfold. The expenditure
on advertisements, which began at a level of only $200,000 a year and
gradually increased to $10 million, seemed a brilliant investment.

EXCEPT for those few stones that have been destroyed, every diamond
that has been found and cut into a jewel still exists today and is
literally in the public's hands. Some hundred million women wear
diamonds, while millions of others keep them in safe-deposit boxes or
strongboxes as family heirlooms. It is conservatively estimated that
the public holds more than 500 million carats of gem diamonds, which
is more than fifty times the number of gem diamonds produced by the
diamond cartel in any given year. Since the quantity of diamonds
needed for engagement rings and other jewelry each year is satisfied
by the production from the world's mines, this half-billion-carat
supply of diamonds must be prevented from ever being put on the
market. The moment a significant portion of the public begins selling
diamonds from this inventory, the price of diamonds cannot be
sustained. For the diamond invention to survive, the public must be
inhibited from ever parting with its diamonds.

In developing a strategy for De Beers in 1953, N. W. Ayer said: "In
our opinion old diamonds are in 'safe hands' only when widely
dispersed and held by individuals as cherished possessions valued far
above their market price." As far as De Beers and N. W. Ayer were
concerned, "safe hands" belonged to those women psychologically
conditioned never to sell their diamonds. This conditioning could not
be attained solely by placing advertisements in magazines. The diamond-
holding public, which includes people who inherit diamonds, had to
remain convinced that diamonds retained their monetary value. If it
saw price fluctuations in the diamond market and attempted to dispose
of diamonds to take advantage of changing prices, the retail market
would become chaotic. It was therefore essential that De Beers
maintain at least the illusion of price stability.

In the 1971 De Beers annual report, Harry Oppenheimer explained the
unique situation of diamonds in the following terms: "A degree of
control is necessary for the well-being of the industry, not because
production is excessive or demand is falling, but simply because wide
fluctuations in price, which have, rightly or wrongly, been accepted
as normal in the case of most raw materials, would be destructive of
public confidence in the case of a pure luxury such as gem diamonds,
of which large stocks are held in the form of jewelry by the general
public." During the periods when production from the mines temporarily
exceeds the consumption of diamonds -- the balance is determined
mainly by the number of impending marriages in the United States and
Japan -- the cartel can preserve the illusion of price stability by
either cutting back the distribution of diamonds at its London
"sights," where, ten times a year, it allots the world's supply of
diamonds to about 300 hand-chosen dealers, called "sight-holders," or
by itself buying back diamonds at the wholesale level. The underlying
assumption is that as long as the general public never sees the price
of diamonds fall, it will not become nervous and begin selling its
diamonds. If this huge inventory should ever reach the market, even De
Beers and all the Oppenheimer resources could not prevent the price of
diamonds from plummeting.

Selling individual diamonds at a profit, even those held over long
periods of time, can be surprisingly difficult. For example, in 1970,
the London-based consumer magazine Money Which? decided to test
diamonds as a decade long investment. It bought two gem-quality
diamonds, weighing approximately one-half carat apiece, from one of
London's most reputable diamond dealers, for £400 (then worth about a
thousand dollars). For nearly nine years, it kept these two diamonds
sealed in an envelope in its vault. During this same period, Great
Britain experienced inflation that ran as high as 25 percent a year.
For the diamonds to have kept pace with inflation, they would have had
to increase in value at least 300 percent, making them worth some £400
pounds by 1978. But when the magazine's editor, Dave Watts,tried to
sell the diamonds in 1978, he found that neither jewelry stores nor
wholesale dealers in London's Hatton Garden district would pay
anywhere near that price for the diamonds. Most of the stores refused
to pay any cash for them; the highest bid Watts received was £500,
which amounted to a profit of only £100 in over eight years, or less
than 3 percent at a compound rate of interest. If the bid were
calculated in 1970 pounds, it would amount to only £167. Dave Watts
summed up the magazine's experiment by saying, "As an 8-year
investment the diamonds that we bought have proved to be very poor."
The problem was that the buyer, not the seller, determined the price.

The magazine conducted another experiment to determine the extent to
which larger diamonds appreciate in value over a one-year period. In
1970, it bought a 1.42 carat diamond for £745. In 1971, the highest
offer it received for the same gem was £568. Rather than sell it at
such an enormous loss, Watts decided to extend the experiment until
1974, when he again made the round of the jewelers in Hatton Garden to
have it appraised. During this tour of the diamond district, Watts
found that the diamond had mysteriously shrunk in weight to 1.04
carats. One of the jewelers had apparently switched diamonds during
the appraisal. In that same year, Watts, undaunted, bought another
diamond, this one 1.4 carats, from a reputable London dealer. He paid
£2,595. A week later, he decided to sell it. The maximum offer he
received was £1,000.

In 1976, the Dutch Consumer Association also tried to test the price
appreciation of diamonds by buying a perfect diamond of over one carat
in Amsterdam, holding it for eight months, and then offering it for
sale to the twenty leading dealers in Amsterdam. Nineteen refused to
buy it, and the twentieth dealer offered only a fraction of the
purchase price.

Selling diamonds can also be an extraordinarily frustrating experience
for private individuals. In 1978, for example, a wealthy woman in New
York City decided to sell back a diamond ring she had bought from
Tiffany two years earlier for $100,000 and use the proceeds toward a
necklace of matched pearls that she fancied. She had read about the
"diamond boom" in news magazines and hoped that she might make a
profit on the diamond. Instead, the sales executive explained, with
what she said seemed to be a touch of embarrassment, that Tiffany had
"a strict policy against repurchasing diamonds." He assured her,
however, that the diamond was extremely valuable, and suggested
another Fifth Avenue jewelry store. The woman went from one leading
jeweler to another, attempting to sell her diamond. One store offered
to swap it for another jewel, and two other jewelers offered to accept
the diamond "on consignment" and pay her a percentage of what they
sold it for, but none of the half-dozen jewelers she visited offered
her cash for her $100,000 diamond. She finally gave up and kept the
diamond.

Retail jewelers, especially the prestigious Fifth Avenue stores,
prefer not to buy back diamonds from customers, because the offer they
would make would most likely be considered ridiculously low. The
"keystone," or markup, on a diamond and its setting may range from 100
to 200 percent, depending on the policy of the store; if it bought
diamonds back from customers, it would have to buy them back at
wholesale prices. Most jewelers would prefer not to make a customer an
offer that might be deemed insulting and also might undercut the
widely held notion that diamonds go up in value. Moreover, since
retailers generally receive their diamonds from wholesalers on
consignment, and need not pay for them until they are sold, they would
not readily risk their own cash to buy diamonds from customers. Rather
than offer customers a fraction of what they paid for diamonds, retail
jewelers almost invariably recommend to their clients firms that
specialize in buying diamonds "retail."

The firm perhaps most frequently recommended by New York jewelry shops
is Empire Diamonds Corporation, which is situated on the sixty-sixth
floor of the Empire State Building, in midtown Manhattan. Empire's
reception room, which resembles a doctor's office, is usually crowded
with elderly women who sit nervously in plastic chairs waiting for
their names to be called. One by one, they are ushered into a small
examining room, where an appraiser scrutinizes their diamonds and
makes them a cash offer. "We usually can't pay more than a maximum of
90 percent of the current wholesale price," says Jack Brod, president
of Empire Diamonds. "In most cases we have to pay less, since the
setting has to be discarded, and we have to leave a margin for error
in our evaluation -- especially if the diamond is mounted in a
setting." Empire removes the diamonds from their settings, which are
sold as scrap, and resells them to wholesalers. Because of the steep
markup on diamonds, individuals who buy retail and in effect sell
wholesale often suffer enormous losses. For example, Brod estimates
that a half-carat diamond ring, which might cost $2,000 at a retail
jewelry store, could be sold for only $600 at Empire.

The appraisers at Empire Diamonds examine thousands of diamonds a
month but rarely turn up a diamond of extraordinary quality. Almost
all the diamonds they find are slightly flawed, off-color, commercial-
grade diamonds. The chief appraiser says, "When most of these diamonds
were purchased, American women were concerned with the size of the
diamond, not its intrinsic quality." He points out that the setting
frequently conceals flaws, and adds, "The sort of flawless, investment-
grade diamond one reads about is almost never found in jewelry."

Many of the elderly women who bring their jewelry to Empire Diamonds
and other buying services have been victims of burglaries or muggings
and fear further attempts. Thieves, however, have an even more
difficult time selling diamonds than their victims. When suspicious-
looking characters turn up at Empire Diamonds, they are asked to wait
in the reception room, and the police are called in. In January of
1980, for example, a disheveled youth came into Empire with a bag full
of jewelry that he called "family heirlooms." When Brod pointed out
that a few pieces were imitations, the youth casually tossed them into
the wastepaper basket. Brod buzzed for the police.

When thieves bring diamonds to underworld "fences," they usually get
only a pittance for them. In 1979, for example, New York City police
recovere stolen diamonds with an insured value of $50,000 which had
been sold to a 'fence' for only $200. According to the assistant
district attorney who handled the case, the fence was unable to
dispose of the diamonds on 47th Street, and he was eventually turned
in by one of the diamond dealers he contacted.

While those who attempt to sell diamonds often experience
disappointment at the low price they are offered, stories in gossip
columns suggest that diamonds are resold at enormous profits. This is
because the column items are not about the typical diamond ring that a
woman desperately attempts to peddle to small stores and diamond
buying services like Empire but about truly extraordinary diamonds
that movie stars sell, or claim to sell, in a publicity-charged
atmosphere. The legend created around the so-called "Elizabeth Taylor"
diamond is a case in point. This pear-shaped diamond, which weighed
69.42 carats after it had been cut and polished, was the fifty-sixth
largest diamond in the world and one of the few large-cut diamonds in
private hands. Except that it was a diamond, it had little in common
with the millions of small stones that are mass-marketed each year in
engagement rings and other jewelry.

A serious threat to the Stability of the diamond invention came in the
late 1970s from the sale of "investment" diamonds to speculators in
the United States. A large number of fraudulent investment firms, most
of them in Arizona, began telephoning prospective clients drawn from
various lists of professionals and investors who had recently sold
stock. "Boiler-room operators," many of them former radio and
television announcers, persuaded strangers to buy mail-order diamonds
as investments that were supposedly much safer than stocks or bonds.
Many of the newly created firms also held "diamond-investment
seminars" in expensive resort hotels, where they presented impressive
graphs and data. Typically assisted by a few well-rehearsed shills in
the audience, the seminar leaders sold sealed packets of diamonds to
the audience. The leaders often played on the fear of elderly
investors that their relatives might try to seize their cash assets
and commit them to nursing homes. They suggested that the investors
could stymie such attempts by putting their money into diamonds and
hiding them.

The sealed packets distributed at these seminars and through the mail
included certificates guaranteeing the quality of the diamonds -- as
long as the packets remained sealed. Customers who broke the seal
often learned from independent appraisers that their diamonds were of
a quality inferior to that stated. Many were worthless. Complaints
proliferated so fast that, in 1978, the attorney general of New York
created a "diamond task force" to investigate the hundreds of
allegations of fraud.

Some of the entrepreneurs were relative newcomers to the diamond
business. Rayburne Martin, who went from De Beers Diamond Investments,
Ltd. (no relation to the De Beers cartel) to Tel-Aviv Diamond
Investments, Ltd. -- both in Scottsdale, Arizona -- had a record of
embezzlement and securities law violations in Arkansas, and was a
fugitive from justice during most of his tenure in the diamond trade.
Harold S. McClintock, also known as Harold Sager, had been convicted
of stock fraud in Chicago and involved in a silver-bullion-selling
caper in 1974 before he helped organize DeBeers Diamond Investments,
Ltd. Don Jay Shure, who arranged to set up another DeBeers Diamond
Investments, Ltd., in Irvine, California, had also formerly been
convicted of fraud. Bernhard Dohrmann, the "marketing director" of the
International Diamond Corporation, had served time in jail for
security fraud in 1976. Donald Nixon, the nephew of former President
Richard M. Nixon, and fugitive financier Robert L. Vesco were,
according to the New York State attorney general, participating in the
late 1970s in a high-pressure telephone campaign to sell "overvalued
or worthless diamonds" by employing "a battery of silken-voiced radio
and television announcers." Among the diamond salesmen were also a
wide array of former commodity and stock brokers who specialized in
attempting to sell sealed diamonds to pension funds and retirement
plans.

In London, the real De Beers, unable to stifle all the bogus
entrepreneurs using its name, decided to explore the potential market
for investment gems. It announced in March of 1978 a highly unusual
sort of "diamond fellowship" for selected retail jewelers. Each
jeweler who participated would pay a $2,000 fellowship fee. In return,
he would receive a set of certificates for investment-grade diamonds,
contractual forms for "buy-back" guarantees, promotional material, and
training in how to sell these unmounted diamonds to an entirely new
category of customers. The selected retailers would then sell loose
stones rather than fine jewels, with certificates guaranteeing their
value at $4,000 to $6,000.

De Beers's modest move into the investment-diamond business caused a
tremor of concern in the trade. De Beers had always strongly opposed
retailers selling "investment" diamonds, on the grounds that because
customers had no sentimental attachment to such diamonds, they would
eventually attempt to resell them and cause sharp price fluctuations.

If De Beers had changed its policy toward investment diamonds, it was
not because it wanted to encourage the speculative fever that was
sweeping America and Europe. De Beers had "little choice but to get
involved," as one De Beers executive explained. Many established
diamond dealers had rushed into the investment field to sell diamonds
to financial institutions, pension plans, and private investors. It
soon became apparent in the Diamond Exchange in New York that selling
unmounted diamonds to investors was far more profitable than selling
them to jewelry shops. By early 1980, David Birnbaum, a leading dealer
in New York, estimated that nearly a third of all diamond sales in the
United States were, in terms of dollar value, of these unmounted
investment diamonds. "Only five years earlier, investment diamonds
were only an insignificant part of the business," he said. Even if De
Beers did not approve of this new market in diamonds, it could hardly
ignore a third of the American diamond trade.

To make a profit, investors must at some time find buyers who are
willing to pay more for their diamonds than they did. Here, however,
investors face the same problem as those attempting to sell their
jewelry: there is no unified market in which to sell diamonds.
Although dealers will quote the prices at which they are willing to
sell investment-grade diamonds, they seldom give a set price at which
they are willing to buy diamonds of the same grade. In 1977, for
example, Jewelers' Circular Keystone polled a large number of retail
dealers and found a difference of over 100 percent in offers for the
same quality of investment-grade diamonds. Moreover, even though most
investors buy their diamonds at or near retail price, they are forced
to sell at wholesale prices. As Forbes magazine pointed out, in 1977,
"Average investors, unfortunately, have little access to the wholesale
market. Ask a jeweler to buy back a stone, and he'll often begin by
quoting a price 30% or more below wholesale." Since the difference
between wholesale and retail is usually at least 100 percent in
investment diamonds, any gain from the appreciation of the diamonds
will probably be lost in selling them.

"There's going to come a day when all those doctors, lawyers, and
other fools who bought diamonds over the phone take them out of their
strongboxes, or wherever, and try to sell them," one dealer predicted
last year. Another gave a gloomy picture of what would happen if this
accumulation of diamonds were suddenly sold by speculators.
"Investment diamonds are bought for $30,000 a carat, not because any
woman wants to wear them on her finger but because the investor
believes they will be worth $50,000 a carat. He may borrow heavily to
leverage his investment. When the price begins to decline, everyone
will try to sell their diamonds at once. In the end, of course, there
will be no buyers for diamonds at $30,000 a carat or even $15,000. At
this point, there will be a stampede to sell investment diamonds, and
the newspapers will begin writing stories about the great diamond
crash. Investment diamonds constitute, of course, only a small
fraction of the diamonds held by the public, but when women begin
reading about a diamond crash, they will take their diamonds to retail
jewelers to be appraised and find out that they are worth less than
they paid for them. At that point, people will realize that diamonds
are not forever, and jewelers will be flooded with customers trying to
sell, not buy, diamonds. That will be the end of the diamond
business."

BUT a panic on the part of investors is not the only event that could
end the diamond business. De Beers is at this writing losing control
of several sources of diamonds that might flood the market at any
time, deflating forever the price of diamonds.

In the winter of 1978, diamond dealers in New York City were becoming
increasingly concerned about the possibility of a serious rupture, or
even collapse, of the "pipeline" through which De Beers's diamonds
flow from the cutting centers in Europe to the main retail markets in
America and Japan. This pipeline, a crucial component of the diamond
invention, is made up of a network of brokers, diamond cutters,
bankers, distributors, jewelry manufacturers, wholesalers, and diamond
buyers for retail establishments. Most of the people in this pipeline
are Jewish, and virtually all are closely interconnected, through
family ties or long-standing business relationships.

An important part of the pipeline goes from London to diamond-cutting
factories in Tel Aviv to New York; but in Israel, diamond dealers were
stockpiling supplies of diamonds rather than processing and passing
them through the pipeline to New York. Since the early 1970s, when
diamond prices were rapidly increasing and Israeli currency was
depreciating by more than 50 percent a year, it had been more
profitable for Israeli dealers to keep the diamonds they received from
London than to cut and sell them. As more and more diamonds were taken
out of circulation in Tel Aviv, an acute shortage began in New York,
driving prices up.

In early 1977, Sir Philip Oppenheimer dispatched his son Anthony to
Tel Aviv, accompanied by other De Beers executives, to announce that
De Beers intended to cut the Israeli quota of diamonds by at least 20
percent during the coming year. This warning had the opposite effect
of what he intended. Rather than paring down production to conform to
this quota, Israeli manufacturers and dealers began building up their
own stockpiles of diamonds, paying a premium of 100 percent or more
for the unopened boxes of diamonds that De Beers shipped to Belgian
and American dealers. (By selling their diamonds to the Israelis, the
De Beers clients could instantly double their money without taking any
risks.) Israeli buyers also moved into Africa and began buying
directly from smugglers. The Intercontinental Hotel in Liberia, then
the center for the sale of smuggled goods, became a sort of extension
of the Israeli bourse. After the Israeli dealers purchased the
diamonds, either from De Beers clients or from smugglers, they
received 80 percent of the amount they had paid in the form of a loan
from Israeli banks. Because of government pressure to help the diamond
industry, the banks charged only 6 percent interest on these loans,
well below the rate of inflation in Israel. By 1978, the banks had
extended $850 million in credit to diamond dealers, an amount equal to
some 5 percent of the entire gross national product of Israel. The
only collateral the banks had for these loans was uncut diamonds.

De Beers estimated that the Israeli stockpile was more than 6 million
carats in 1977, and growing at a rate of almost half a million carats
a month. At that rate, it would be only a matter of months before the
Israeli stockpile would exceed the cartel's in London. If Israel
controlled such an enormous quantity of diamonds, the cartel could no
longer fix the price of diamonds with impunity. At any time, the
Israelis could be forced to pour these diamonds onto the world market.
The cartel decided that it had no alternative but to force liquidation
of the Israeli stockpile.

If De Beers wanted to bring the diamond speculation under control, it
would have to clamp down on the banks, which were financing diamond
purchases with artificially low interest rates. De Beers announced
that it was adopting a new strategy of imposing "surcharges" on
diamonds. Since these "surcharges," which might be as much as 40
percent of the value of the diamonds, were effectively a temporary
price increase, they could pose a risk to banks extending credit to
diamond dealers. For example, with a 40 percent surcharge, a diamond
dealer would have to pay $1,400 rather than $1,000 for a small lot of
diamonds; however, if the surcharge was withdrawn, the diamonds would
be worth only a thousand dollars. The Israeli banks could not afford
to advance 80 percent of a purchase price that included the so-called
surcharge; they therefore required additional collateral from dealers
and speculators. Further, they began, under pressure from De Beers, to
raise interest rates on outstanding loans.

Within a matter of weeks in the summer of 1978, interest rates on
loans to purchase diamonds went up 50 percent. Moreover, instead of
lending money based on what Israeli dealers paid for diamonds, the
banks began basing their loans on the official De Beers price for
diamonds. If a dealer paid more than the De Beers price for diamonds
-- and most Israeli dealers were paying at least double the price --
he would have to finance the increment with his own funds.

To tighten the squeeze on Israel, De Beers abruptly cut off shipments
of diamonds to forty of its clients who had been selling large
portions of their consignments to Israeli dealers. As Israeli dealers
found it increasingly difficult either to buy or finance diamonds,
they were forced to sell diamonds from the stockpiles they had
accumulated. Israeli diamonds poured onto the market, and prices at
the wholesale level began to fall. This decline led the Israeli banks
to put further pressure on dealers to liquidate their stocks to repay
their loans. Hundreds of Israeli dealers, unable to meet their
commitments, went bankrupt as prices continued to plunge. The banks
inherited the diamonds.

Last spring, executives of the Diamond Trading Company made an
emergency trip to Tel Aviv. They had been informed that three Israeli
banks were holding $1.5 billion worth of diamonds in their vaults --
an amount equal to nearly the annual production of all the diamond
mines in the world -- and were threatening to dump the hoard of
diamonds onto an already depressed market. When the banks had
investigated the possibilities of reselling the diamonds in Europe or
the United States, they found little interest. The world diamond
market was already choked with uncut and unsold diamonds. The only
alternative to dumping their diamonds on the market was reselling them
to De Beers itself.

De Beers, however, is in no position to absorb such a huge cache of
diamonds. During the recession of the mid-970s, it had to use a large
portion of its cash reserve to buy diamonds from Russia and from newly
independent countries in Africa, in order to preserve the cartel
arrangement. As it added diamonds to its stockpile, De Beers depleted
its cash reserves. Furthermore, in 1980, De Beers found it necessary
to buy back diamonds on the wholesale markets in Antwerp to prevent a
complete collapse in diamond prices. When the Israeli banks approached
De Beers about the possibility of buying back the diamonds, De Beers,
possibly for the first time since the depression of the 1930s, found
itself severely strapped for cash. It could, of course, borrow the
$1.5 billion necessary to bail out the Israeli banks, but this would
strain the financial structure of the entire Oppenheimer empire.

Sir Philip Oppenheimer, Monty Charles, Michael Grantham, and other top
executives from De Beers and its subsidiaries attempted to prevent the
Israeli banks from dumping their hoard of diamonds. Despite their best
efforts, however, the situation worsened. Last September, Israel's
major banks quietly informed the Israeli government that they faced
losses of disastrous proportions from defaulted accounts almost
entirely collateralized with diamonds. Three of Israel's largest banks
-- the Union Bank of Israel, the Israel Discount Bank, and Barclays
Discount Bank -- had loans of some $660 million outstanding to diamond
dealers, which constituted a significant portion of the bank debt in
Israel. To be sure, not all of these loans were in jeopardy; but,
according to bank estimates, defaults in diamond accounts rose to 20
percent of their loan portfolios. The crisis had to be resolved either
by selling the diamonds that had been put up as collateral, which
might precipitate a worldwide selling panic, or by some sort of
outside assistance from the Israeli government or De Beers or both.
The negotiations provided only stopgap assistance: De Beers would buy
back a small proportion of the diamonds, and the Israeli government
would not force the banks to conform to banking regulations that would
result in the liquidation of the stockpile.

"Nobody took into account that diamonds, like any other commodity, can
drop in value," Mark Mosevics, chairman of First International Bank of
Israel, explained to The New York Times. According to industry
estimates, the average one-carat flawless diamond had fallen in value
by 50 percent since January of 1980. In March of 1980, for example,
the benchmark value for such a diamond was $63,000; in September of
1981, it was only $23,000. This collapse of prices forced Israeli
banks to sell diamonds from their stockpile at enormous discounts. One
Israeli bank reportedly liquidated diamonds valued at $6 million for
$4 million in cash in late 1981. It became clear to the diamond trade
that a major stockpile of large diamonds was out of De Beers's
control.

THE most serious threat to De Beers is yet another source of diamonds
that it does not control -- a source so far untapped. Since Cecil
Rhodes and the group of European bankers assembled the components of
the diamond invention at the end of the nineteenth century, managers
of the diamond cartel have shared a common nightmare -- that a giant
new source of diamonds would be discovered outside their purview. Sir
Ernest Oppenheimer, using all the colonial connections of the British
Empire, succeeded in weaving the later discoveries of diamonds in
Africa into the fabric of the cartel; Harry Oppenheimer managed to
negotiate a secret agreement that effectively brought the Soviet Union
into the cartel. However, these brilliant efforts did not end the
nightmare. In the late 1970s, vast deposits of diamonds were
discovered in the Argyle region of Western Australia, near the town of
Kimberley (coincidentally named after Kimberley, South Africa). Test
drillings last year indicated that these pipe mines could produce up
to 50 million carats of diamonds a year -- more than the entire
production of the De Beers cartel in 1981. Although only a small
percentage of these diamonds are of gem quality, the total number
produced would still be sufficient to change the world geography of
diamonds. Either this 50 million carats would be brought under control
or the diamond invention would be destroyed.

De Beers rapidly moved to get a stranglehold on the Australian
diamonds. It began by acquiring a small, indirect interest in Conzinc
Riotinto of Australia, Ltd. (CRA), the company that controlled most of
the mining rights. In 1980, it offered a secret deal to CRA through
which it would market the total output of Australian production. This
agreement might have ended the Australian threat if Northern Mining
Corporation, a minority partner in the venture, had accepted the deal.
Instead, Northern Mining leaked the terms of the deal to a leading
Australian newspaper, which reported that De Beers planned to pay the
Australian consortium 80 percent less than the existing market price
for the diamonds. This led to a furor in Australia. The opposition
Labour Party charged not only that De Beers was seeking to cheat
Australians out of the true value of the diamonds but that the deal
with De Beers would support the policy of apartheid in South Africa.
It demanded that the government impose export controls on the diamonds
rather than allow them to be controlled by a South African
corporation. Prime Minister Malcolm Fraser, faced with a storm of
public protest, said that he saw no advantage in "arrangements in
which Australian diamond discoveries only serve to strengthen a South
African monopoly." He left the final decision on marketing, however,
to the Western Australia state government and the mining companies,
which may or may not decide to make an arrangement with De Beers.

De Beers also faces a crumbling empire in Zaire. Sir Ernest
Oppenheimer had concluded, more than fifty years ago, that control
over the diamond mines in Zaire (then called the Belgian Congo) was
the key to the cartel's control of world production. De Beers,
together with its Belgian partners, had instituted mining and sorting
procedures that would maximize the production of industrial (rather
than gem) diamonds. Since there was no other ready customer for the
enormous quantities of industrial diamonds the Zairian mines produced,
De Beers remained their only outlet. In June of last year, however,
President Mobuto abruptly announced that his country's exclusive
contract with a De Beers subsidiary would not be renewed. Mobuto was
reportedly influenced by offers he received for Zaire's diamond
production from both Indian and American manufacturers. According to
one New York diamond dealer, "Mobuto simply wants a more lucrative
deal." Whatever his motives, the sudden withdrawal of Zaire from the
cartel further undercuts the stability of the diamond market. With
increasing pressure for the independence of Namibia, and a less
friendly government in neighboring Botswana, De Beers's days of
control in black Africa seem numbered.

Even in the midst of this crisis, De Beers's executives in London have
been maneuvering to save the diamond invention by buying up loose
diamonds. The inventory of diamonds in De Beers's vault has swollen to
a value of over a billion dollars -- twice the value of the 1979
inventory. To rekindle the demand for diamonds, De Beers recently
launched a new multimillion-dollar advertising campaign (including
$400,000 for television advertisements during the British royal
wedding in July), yet it can be expected to buy only a few years of
time for the cartel. By the mid-1980s, the avalanche of Australian
diamonds will be pouring onto the market. Unless the resourceful
managers of De Beers can find a way to gain control of the various
sources of diamonds that will soon crowd the market, these sources may
bring about the final collapse of world diamond prices. If they do,
the diamond invention will disintegrate and be remembered only as a
historical curiosity, as brilliant in its way as the glittering little
stones it once made so valuable.