Origin of the Diamond Trade

Today, diamonds are available for purchase by anyone who can afford them, but at the beginning of their history, diamonds were believed to be owned and adorned only by Royalty and the super wealthy people in society. How did this gem that used to be exclusive become everybody’s gem? This phenomenon started with a company named De Beers during the early 1900s in what has become the greatest marketing campaign ever created that changed the diamond industry for good.

Cecil Rhodes, a young man from South Africa, started De Beers Consolidated Mines in 1888 by buying up claims of small mining companies as well as properties for diamond mining purposes. This came to be after mines and river deposits in the country became popular for their abundant diamond production. With De Beers, Rhodes became the greatest producer of rough diamonds in South Africa that at its peak, De Beers even managed to control up to 85% of the world’s diamond supply.  To easily market his diamonds, Rhodes established a strong partnership with the Diamond Syndicate based in London.
 
Another strategy the company used was to eliminate competition, so Rhodes either offered competitors who entered the market to join his operation or he simply bought them out. Rhodes believed that the only way to maintain the value as well as the price of diamonds was to control its supply.  This principle proved to be the greatest driving factor of the De Beers Empire until the end of the 1990’s.
   
To control supply, De Beers mined the rough diamonds and sold them once a month to a handpicked group of buyers called sightholders. To be a sightholder, a company must commit to buy a pre-determined quantity of merchandise every month amounting to millions of dollars and were rarely able to reject a parcel of diamonds. From the sightholders the diamonds are sold either as cut and polished gems or as rough diamonds to rough diamond traders who in turn sell them to diamond manufacturing companies.  Manufacturing companies cut and polish these diamonds and then sell them, either directly or through brokers, to diamond dealers located in major diamond centers around the world. The largest diamond centers today are located in cities such as Antwerp, Tel Aviv, Mumbai, and New York.
 
At this point, the dealers sell the diamonds to wholesalers who then sell them directly to retail jewelry stores as loose diamonds or mounted jewelry.  This multi-layered marketing hierarchy of diamonds has taken its toll on its affordability so that many companies started to immediately streamline their operations by cutting out the middlemen and reduce costs. Jewelry manufacturers began buying in bulk directly from diamond manufacturers and then sell them directly to retail jewelry stores. In the same manner, some Diamond Dealers began selling directly to retail stores cutting out the unnecessary wholesalers or middlemen.
 
Today, the Internet has further cut many people in between as diamond manufacturers are now selling directly to the consumer through their very own online jewelry stores. 

In the next article we’ll explore how De Beers launched their US marketing campaign as well as the ensuing 1980’s US diamond market revolution.

About the Author
Eli Zabib, a GIA educated Graduate Gemologist, invites you to benefit from his 15+ years of experience in the diamond and jewelry industry. Become a diamond “expert” by downloading your free 29 page Diamond Buying Guide eBook at http://www.yourspecialdiamond.com and browse the topics in the Diamond Education & Resources center.

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