What Really Happens Behind The Scenes of Diamond Dealing
The article I am writing is strictly my opinion “Lee Josephson” partner in Raymond Lee Jewelers.
I find that local brick and mortar jewelry retailers and even large online e-tailers are very removed from what is actually occurring behind the scenes in the diamond world.
People are not going to stop getting engaged (at least not for the foreseeable future) and they are going to continue to buy diamond rings. The fact remains is that when there is a liquidity issue in an entire industry, prices fall. Interestingly enough though, falling prices in the market does not result in lower prices at your local jeweler or even online.
The diamond industry is currently facing this liquidity issue right now and has been for quite some time. The largest diamond wholesalers in the world that have the most capital can and do hold inventory until there is a market correction (they can afford to, trust me). Their smaller competition has no choice but to sell at whatever the market will bear. This is where cash buyers come in. When they see an opportunity they take it. What we are seeing now is even the cash buyers that are waiting to practically steal merchandise from struggling diamond dealers don’t even want to buy. When this starts to happen you see huge price drops in this particular market or any other market. We have seen this in real estate, the stock market and every other market. One of the major reasons for this drop in price is the borrowing power of the diamond wholesaler.
The majority of banks that have financed diamond companies have gone bankrupt, stopped lending or recalled lines of credit. If people can’t buy because they can’t get financing, but can’t sell because their old inventory costs too much, what are you left with? Somewhat of a crisis is what I see! Please keep in mind that this is a cyclical trend.
I owned a gorgeous 10.50 carat G.I.A. certified round diamond in 2003. I wanted “x” amount of dollars for it; it was worth the money, and no one else in the market had anything comparable, yet nobody in the jewelry trade or the general public stepped up to the plate. What was the problem?? The first problem was that it was freaking huge and not for 99.9999% of the population’s taste because of its size. It also cost a small fortune because of how big it was. The jewelry trade had a need for it for sure, there are always buyers for diamonds like that. They become commodities at a certain level that are bought, sold and traded frequently around the world.
Getting back to my point, I waited on selling it at a slightly lower price for too long and then the recession came. It was now worth fifty thousand dollars less than I had paid for it, if I could even find a buyer. As a company we were okay to sit on the stone or at least I was. I have faith in markets that can be volatile, especially the diamond market. Bottom line, I waited a few years and eventually found myself in Hong Kong standing behind my booth asking the same price I was asking for the stone on day one of ownership. The show had not even opened to the public yet, however I was surrounded by people from all different countries including India, China, America and many others all of whom were colleagues and exhibitors.
It turned into a huge bidding war right in front of me for this same stone I could not believe it. MY BOOTH WAS 10 PEOPLE DEEP. I made eye contact with a very tall man from India that I had discussed the stone with 10 minutes before. He was behind the entire crowd. He just raised his hand up to let me know he would take it for full asking and I yelled out SOLD. Everyone went nuts. This is a real life example of how the markets change.
The only thing I can suggest to the public looking to buy an engagement ring is don’t buy your ring in a regular big chain jewelry store or online seller. Both of these groups are selling other people’s merchandise and tacking on a few hundred dollars, or even worse doubling and tripling their money. That leaves you in a bad place because if you were ever to sell your jewelry you would end up losing all of that extra money that was added on at the beginning. You’d be left with only a tiny percentage of the amount of money that you had originally paid for the piece. This all adds up to a big loss for you! You will always make a better deal for yourself by buying from a smaller company that is very active in the wholesale and retail business end of the diamond industry. They are much more likely to be aware of market trends and are able to adapt and change the moment they happen.
Flying to 47th street in New York or going to down town Miami, Chicago or LA is a mental thing. It does not necessarily save you a dime!