Cheapskates Are Buying Diamonds
The point of bling is to show-off. Its demand goes down when prices go down because you want to be seen with things that are expensive. If diamonds can’t command high market prices, there’s no market for them, and so the gemstone business has it tough now with lockdown taking its toll.
The demand for diamonds is just about all gone, and, weirdly, investors are not in a hurry for it to come rushing back. The world’s five biggest diamond mines haven’t stopped digging amid shutdown (it’s expensive to ‘close’ a mine). These companies are sitting on about a third of their annual diamond production in excess, dragging down stone value!
It’s a race to de-stock for the likes of Rio Tinto and Lucara Diamond, but the brass rule here is “don’t get haggled down.” If this means turning customers away when revenues are already non-existent, so be it.
This is something investors can understand, but there’s still a problem. The smaller diamond producers are saying, “thank you very much,” serving said customers and bottoming the diamond value in a lunge for market share.
This is similar to what we saw in the oil markets; opportunists waging a price war. There’s no legal diamond cartel, though. The range of outcomes is more unclear. We have investors shorting Rio Tinto with as much vigor as those with the variant view that big boys do the real price-setting, and that the de-stock is working.
If these diamond producers can battle their way toward an equilibrium of sorts, their share prices could double or triple as demand returns. There’s plenty of money made when situations go from hopelessly bearish to conceivably bullish.
Maybe we’re just chasing the shiny object here!