The diamond market, depressed for now, polishes its image
From the street level, New York City's 47th Street (also known as diamond jewelry way) is an anamoly. A rabbit warren of tiny shops and stalls -- organized into utilitarian exchanges and overflowing with opulent jeweled broaches, bracelets, and rings -- it is so dazzling it would make Ali Baba envious. The atmosphere is more like a Turkish bazaar than a modern retailing district.Skip to next paragraph
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Two years ago, when gold reached $800 and diamond prices were priced at $60, 000 a carot, action on the street was frantic. Everyone rushed to speculate on the spiraling prices of precious stones. But the scene changed dramatically after gold and diamond prices sank. Shop windows carried ''For Rent'' signs. Stores and stalls emptied. Only a few couples wandered around, pricing wedding rings.
But those scores of small retailers are only the tip of the iceberg on the city's famous street of jewels. Upstairs, above the shops, are the offices of the city's serious diamond dealers - the 2,000 or so members of the Diamond Dealers Club who handle about 80 percent of the diamonds that come into the United States and have access to direct sales of rough diamonds from the De Beers Consolidated Mines, the Euorpean syndicate that controlls nearly all the world's diamonds.
And upstairs, the action is even more depressed than on the street. For the diamond dealers -- a closely knit group composed almost entirely of Jews whose families have traded diamonds for generations -- concentrate on trading stones, not on the jewelry business. They trade diamonds as casually as M&Ms, with only a handshake and their word of honor for a contract. With the price for perfect, round, flawless, one-carat diamonds down from over $60,000 two years ago to less than $20,000 today, many diamond dealers have suffered huge losses.
Compounding the problem has been a flurry of negative articles, including one well-publicized piece published recently in the Atlantic Monthly. The article condemned De Beers in particular and the diamond trade in general for marketing the gems in a deceitful fashion. Such are the ingredients for a full-scale industry collapse.
Although the diamond business is depressed, it is not a disaster, says William Goldberg, president of the Diamond Dealers Club. ''Even if a dealer had a $10 million diamond inventory, and it dropped in value to $2 million, it would not mean bankruptcy. If he were well capitalized, he would have fewer assets, but he would still be in business,'' he says.
Furthermore, Mr. Goldberg points out, the value of the flawless one-carat stone -- once characterized as investment grade -- has fallen the most. Few experienced diamond dealers would hold an inventory composed purely of such pricey stones. Most dealers diversify, holding melees (tiny diamonds, usually set in clusters, which have lost little value) and imperfect stones, usually set into jewelry.