Diamonds Are For Now
Since Marco Polo, the west has moved towards progressively more and more virtual currencies. Paper, plastic and ultimately a few bits in a computer somewhere have been used to make exchanges. But that has left a hankering for something tangible, something of “true worth”. Countries still accumulate or maintain massive gold reserves and, when economic times are tough, you can count on a spate of TV advertisements featuring guys with Cadillac smiles and used-car-salesman wardrobes telling us to buy gold and how it’s the only really sound investment.
Which is curious. While gold has traditionally been used as a medium of exchange, it’s not because of some intrinsic “worth”. It’s primarily due to scarcity – the same thing that makes it impractical as an industrial material in most cases. We used gold because it’s pretty, shiny and reasonably rare like a clean, attentive college student. But while clean, attentive college students may actually do work, gold just sits in a vault somewhere. It has value only because it’s been used as a medium of exchange for perhaps 5,000 years of human history unlike the relative newcomers of paper or virtual money.
But this isn’t about slamming gold. Others have done that far more eloquently that I ever shall, such as William Jennings Bryan in his seminal 1896 Cross of Gold speech advocating bimetalism. It’s about the idea of a commodity as an intrinsic store of long-term worth and my personal favorite example – the diamond.
My grandfather grew up in eastern Europe during the pogroms, lived through the great depression and came out with the idea that having a store of valuables is a good idea. He bought jewelry both as gifts for the ladies in the family, but also as a bit of a backstop in case something went seriously wrong. Gold and diamonds will always command some value even when currency fails, right?
Perhaps. But if a commodity’s value comes substantially from scarcity, what happens when that scarcity is undermined? A case and point happened in 1916 when the first harvest of cultured pearls was made. Pearls went from being among the most valuable gems, often comparable in price to rubies or diamonds (Kublai Khan, among others, preferred pearls) to selling for a few hundred to a few thousands dollars for a nice strand. Some people still seek out natural pearls with their orders-of-magnitude premium price, but they are few and far between. The Mikimoto process essentially used oysters as bio-reactors and reliably replicated in industrial quantities a complex reaction that happens only occasionally in nature. And, in the process, saved the lives of countless innocent pearl-less oysters.
The same change may be coming to diamonds. It’s very hard to transmute one element into another (lead to gold, for example) since the reaction required is nuclear. It’s relatively easy, however, to get atoms to form the stable molecular configuration of your choice, especially the relatively simple pyramidal matrix we like to call diamond. And the feed stock, pure carbon, costs very little. One company, Apollo Diamond, can already make gem stones indistinguishable from mine diamonds. Another, Advanced Diamond Technologies, is making industrial artificial diamonds for about the price of other less-exotic industrial coatings.
Apollo voluntarily laser-etches their diamonds so you know they aren’t mine diamonds. Somehow, this makes old-fashioned diamonds companies breath more easily. After all, if someone has to pick between natural diamonds and artificial diamonds, they’ll pick natural every time, right? Not so fast. Pearls had a relatively light association with human and animal suffering in the process of harvesting them, but that was enough, along with price, to make cultured diamonds into a totally acceptable alternative. Diamonds, however, have more blood on their metaphorical hands than anything other than gold. They finance wars, dictatorships and mass exploitation. Most men I know really struggle with the idea of buying diamond engagement rings for this reason. Two of my best friends got over this by buying them from Apollo.
It’s a mantra of mine to never bet against technology. With cheap feedstock and rapidly improving technology, companies like ADT and Apollo are poised to be disruptive in the diamond industry. And while the same techniques don’t precisely apply to other gemstones, all of them are made from relatively cheap base materials stacked up in not-terribly-complex molecular arrangements. They are still pretty, but the concept of intrinsic worth and scarcity will soon need another look.
You heard it here first – within 50 years and perhaps a lot less, diamonds will be as inexpensive as pearls.
Diamonds may be a girl’s best friend, but they may prove to be a fickle one. Let’s Hope so anyway.
Themocracy
I’ve been watching Apollo. Great to hear you validate what’s driving purchase decisions. (Although wars, dictatorships and mass exploitation will find another funding source – it’s important not to be one)
Track the history of Alum; tech brings the price from $1200/Kilo to 18 cents/lb. http://bit.ly/6F15WN+