Diamonds may not be a girl’s best friend forever
Gentlemen Prefer Blondes. The hardest, shiniest allotrope of carbon has retained this cachet ever since De Beers created a huge demand for diamonds by marketing them as a token of a person’s lasting commitment to another. It did this through an assiduous marketing campaign from the 1930s, in which product placement in Hollywood movies played a significant role.
But diamonds may not be a girl's best friend for much longer. There is currently a slump in the demand for diamonds, according to a Mint report. This is due to lower demand for them in China and the US, the two biggest markets, as gems and for industrial use.
This drop in demand is down to depressed economic conditions in these countries and should be transient. But there is also a longer-term trend at work, one that is likely to undermine demand permanently. It has two components.
One is the increasing sophistication of lab-grown diamonds and their superior ESG appeal, and the other is the luxury-goods paradox, in which lower prices destroy demand. Diamonds have traditionally been known for embodying a paradox – the lack of correlation between a good’s use value and its exchange value. Water sustains life but is cheap, while diamonds have limited use but are expensive.
There are two developments on the cards: the status-goods paradox will erode the demand for diamonds as they drop in price (and increase the supply of lab-grown diamonds); and the declining demand for diamonds will dilute their ability to illustrate the use value vs exchange value paradox. Natural diamonds are scarce and require a lot of labour to mine and transport to cutting, polishing and marketing centres. This gives them their value.
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