Let’s talk my favorite subject – DIAMONDS. Diamonds are an interesting category because they are not trading as a commodity on any exchanges (yet), but they certainly can be treated as an asset with real value in the market. Most jewelers don’t want to tell customers about diamonds as a commodity, or the value of diamonds in the wholesale market. They would rather “romance” the sale – much like the current and past Debeers ad campaigns. Most people in the diamond indusrty are still resistant to

This 9.19 Carat Emerald Cut Diamond Signed by Van Cleef and Arpels sold for $656,500 at Sotheby's in September

transparency. Well, it’s a new world and I’m here to educate and help people make informed decisions about diamonds, whether they are buying or selling.

Back in June, I wrote a blog post, JCK Las Vegas 2011 – Diamonds Are King!, and besides discussing how much fun I had in Vegas, I talked about the how the diamond market was BOOMING. I was getting top top dollar from buyers, especially from India and Asia, where the demand seemed to be high. Since that time, and especially in the past month, I’ve noticed a lot of hesitation from buyers. They are afraid to buy because they don’t know what’s coming worldwide – Europe is a mess and the US isn’t much better off. Bottom line is that each business has to prepare for natural downturns in the market and adjust accordingly. It’s like any business. My personal opinion is that diamonds will come back up as we get closer to the holidays and make a strong run into 2012.

Martin Rapaport, who some may say is the diamond market maker, summed it up recently with this quote:

“The diamond trade must accept the fact that diamonds are part of the real world and that diamond prices go up and down. Price volatility is to be expected and accepted as a normal part of doing business. Firms should develop strategies for dealing with downward moving markets. Smart sellers recognize that inventory cost should be based on replacement cost rather than historic cost. They remain profitable and support market prices by selling cheap and buying cheaper. Lower prices are a healthy part of the economic cycle as they create excellent buying opportunities and higher profits for smart buyers who ensure that diamonds remain an excellent value in uncertain times.” said Martin Rapaport, Chairman of the Rapaport Group.”

Like any smart investor, we look at a little downturn as an excellent buying opportunity. If you’re in market for a diamond, it’s a GREAT time to buy. Just remember that, “Diamonds are part of the real world…”

View from room at Cosmopolitan

venue than the Sands at Venetian. We stayed over at the new Cosmopolitan. GREAT hotel – best rooms in Vegas by far. All rooms have a terrace so we were overlooking the Bellagio fountains every night. That made it hard to get over to Mandalay though – the Cosmo is right in the middle of the action and there are great restaurants and bars in there like STK, Blue Ribbon Sushi, Milos, Bond, to name a few. You know how Vegas gets, it’s hard to know what you’ll be doing at any given time and we were just going with the flow.

So with all that fun – and the Antiques and Estate Jewelry Show (I worked that show Saturday) across the street at Paris, I only made it to the JCK Show on Sunday.  Then Sunday night there was a big party at Mandalay that I missed, although I may have gone if they had a better act than Bruno Mars (really?). While I had a very successful show, (sold some nice stuff) I did miss out on seeing some industry friends, as I was not around the heart of the show and hotel most of the time. As I flew back, I regretted that – however, I will admit that it was somewhat of a conscious decision. We are doing so many exciting and innovative things around here, I didn’t want to get in any conversations and spill the beans.

25.09 Fancy Vivid Yellow Radiant Cut Diamond

Now let’s talk about what I saw in the diamond market. It’s getting very interesting these days as the US is slowly losing it’s status as the world’s largest consumer of diamonds to China and India. With young people in China starting to get more connected and having Western engagements, they will start to consume more diamonds. Not just more but a TON – like billions. India is the other country that has a rising middle class and also a billion people. The Indian diamond dealers are paying big money for stones and buying up as much as they can, often for extremely high prices. Even melee’ prices (diamonds smaller than 1/4 carat) are starting to rise. We are getting paid well for it, and the big stones are moving for big premiums.

How long will this diamond surge last? No one knows, but it looks like a great time to be invested in diamonds, I know I am!

Recession brings glut of diamonds, but few buyers

Baltimore–Last year, Ron Samuelson, chief executive of Samuelson’s Diamonds in Baltimore, bought an 8.5-carat brownish-yellow round diamond mounted in a men’s nugget ring from a customer who was seduced by the “sell your jewelry” offer on the store’s Web site.

“It was a big, ugly stone,” Samuelson recalls. “When we showed it to our cutter, he said, ‘Yeah, I could make this into a fancy yellow.’”

The resulting diamond, a 6.86-carat fancy-yellow radiant, is now part of the store’s inventory, and Samuelson is confident that when he eventually sells the stone, it will net him a tidy profit.

“I’ve almost eliminated my need for diamond dealers,” Samuelson says. “For every one person who wants to buy a diamond, 20 want to sell.”

As a comment on supply and demand in the high-end diamond trade, the Samuelson’s transaction is fitting though hardly anomalous. On Manhattan’s 47th Street, it happens countless times a day.

From the mines to the retail trenches, the perpetual scarcity that defined the business and fueled its tremendous growth over the past five years has, since last fall, morphed into an unfamiliar abundance: so many goods, so few willing buyers.

Take, for example, the market for large, quality diamonds–specifically, the impressive but ultimately replaceable stones in sizes of, say, 10 or 12 carats (not the 40-carat, D-flawlesses or rare vivid-blue diamonds that appear only at auction). A year ago, such stones were impossible to find and came with sticker prices that many described as speculative. Today, they languish on the ultimate buyer’s market. Prices, while said to be firming, are still well below their mid 2008 peak. The auctions are selling them as “real values.”

It’s a sign of these crazy times that not even the Russians are interested.

“We’re not in a crisis because in a crisis, everything goes to hell and comes back,” diamond industry analyst Martin Rapaport, chairman of the Rapaport Group, said during a presentation at BaselWorld. “This is not that, because nothing will be the same. Forces beyond our control are changing the diamond and jewelry industry.”

Citing culprits that contributed to last year’s financial ruin, which resulted in “30 trillion dollars going to hell in a bucket over the last six months,” Rapaport ticked off plummeting real estate prices, soaring unemployment rates and Bernie Madoff.

“Does that affect whether people want to buy diamonds? Duh,” Rapaport said.

The drastic change in consumer sentiment has thrown the diamond industry, like all luxury businesses, into an unprecedented predicament. Crammed full of goods, the pipeline has been in virtual gridlock since last fall, when luxury consumers decided, seemingly en masse, to stop spending. Retailers slashed prices on their holiday merchandise but to no avail. Jewelry continued to literally gather dust in showcases.

“From retailers to producers, it’s hard to think of a more difficult five or six months,” De Beers Botswana Chairman Stephen Lussier says. “We’ve had other crises that impacted one segment of the industry but this one has been universally challenging.”

The rich get poorer

By now, the events that led to such an equal opportunity downturn are permanently imprinted upon the collective consciousness: The United States officially slipped into recession in December 2007, after years of deregulation and chronic risk-taking by the masters of the universe who had created, in effect, a global Ponzi scheme built upon illusory profits and questionable investments.

Throughout the spring and early summer of 2008, however, alarms bells only seemed to ring in the mass market. The trade’s highest echelons claimed immunity to the deteriorating economy, even as signs that things were seriously amiss (Iceland, anyone?) grew difficult to ignore.

It took the Lehman Brothers bankruptcy on Sept. 15 for the biggest spenders to finally grasp that even their rarefied sector of the marketplace could not provide shelter from the storm. Unlike past recessions, which tended to leave the super-wealthy unscathed, this one actually seemed to have the fat cats in its crosshairs.

Sales of luxury yachts, private jets, complicated Swiss watches and, of course, diamond jewels immediately registered the effects of the new consumer mood. A 60 percent decline in fourth quarter U.S. retail sales at Harry Winston (among others) was further proof that a paradigm shift was in progress.

“Luxury is the easiest thing for anyone to cut back on, and jewelry is the ultimate luxury item,” says Pam Danziger, president of Unity Marketing, a consumer insights firm that specializes in the luxury consumer mindset. “People are making a huge adjustment fueled by the media, their own experiences. There’s a bit of leftover guilt from all that spending. These trends were already in the market, making the affluent more careful about their spending. Recession was the tipping point.”

With retail sales down anywhere from 5 to 80 percent after the holidays, wholesale buying largely came to a standstill. It was a simple solution to a crisis of liquidity and retailers embraced it wholeheartedly.

“We’ve got a lot of inventory and haven’t had to fill in as we did last year,” says Brad Marks, vice president of I W Marks Jewelers in Houston. “Vendors have been very good about understanding that things are not moving.”

The one exception, of course, is bridal. Marks, like almost every other jeweler who carries a selection of bridal jewelry, hasn’t had to cut back on that portion of his inventory.

Based on how little actual trade has gone on over the past half-year, Las Vegas market week will be a crucible for the industry. Although many retailers interviewed by National Jeweler at press time said they plan to attend the shows, there is little indication that they will revert to their old spending habits. In fact, if anecdotal evidence is to be believed, sales to retailers won’t pick back up until fall, when it will be easier to estimate how much new inventory the holidays will require.

The companies most vulnerable to the new business-as-usual are jewelry manufacturers, designers and diamond dealers who rely on sales to retailers. Case in point: Doris Panos, the couture designer who filed for Chapter 11 bankruptcy protection in April. Not only have customers stopped buying, but banks have stopped lending, leaving them, as far as cash and credit are concerned, on dangerously thin ice.

So what does this say?  It’s a great time to buy not just for me, but for consumers.  It’s the people that take advantage of real values in this market that will come out smelling like roses in the end.  There are sooo many deals out there and I can’t get enough of them, so if you like diamonds now’s the time!