How rare were the bulbs of tulips in the 1630s? Were there ways to play them fast? Or, perhaps, it was difficult to grow them? These are all questions for historians. What I do know is that diamonds are rare.
It is important to know that diamonds are rare stones. In the last few weeks, I've described how to create a market for diamonds as an asset to preserve wealth. I have already talked about the need to reach a critical mass of adherents of such assets - groups of people who are interested in diamonds and are confident that whatever the diamond they buy, they will find a buyer who will acquire from them this asset by paying them a premium, As we are already doing with other assets. This group should be large enough to create a resale value, which, in turn, will create demand and form a market. To make this happen, we need a critical mass of supporters who will maintain the stability of the value of traded diamonds.
Next, we need education. Training, which begins with lessons on natural history at the elementary level. Children should know that diamonds are rare creations of nature. That the diamonds are formed deep in the bowels of the planet for a million years, then they are brought to the surface by the activity of volcanoes. Another important point is the museum expositions. They show how diamonds are formed, how diamonds are polished and polished and traded.
Auction houses are another important source of information. They already provide information on diamonds of fancy colors for educating potential buyers.
Recently I added one more component to this idea - transparency. Informing potential buyers about the characteristics of a diamond is important. Knowing what the 4C characteristics mean (weight, color, purity and cut) is just the beginning. They also need to know about the heterogeneities and how much they affect the price of the diamond. This is a reasonably good reason to make this information available to those who are interested in making an informed decision about buying a diamond.
The commitment to transparency is not limited to providing consumers with detailed information about the characteristics of the diamond. It also includes giving them a history of price formation. Educated buyers will also want to know about what fluctuations in diamond prices have been in the past.
Rarity is a prerequisite for diamonds
Rarity creates value. This is an old economic rule. The collection of old cars has a value due to its rarity. Works of art have a higher price because of their rarity. After the artist's death, the cost of his paintings tends to rise. This economy is a rarity in action.
Diamonds are also rare. About 82 percent of the world's diamond production comes from just five countries. This is Russia, Botswana, the Democratic Republic of the Congo, Australia and Canada. According to the Kimberley Process (Kimberley Process, CD), in 2015, they combined to export 104 million carats of diamonds.
Together with five other leading countries (Angola, South Africa, Zimbabwe, Namibia and Sierra Leone), the ten leading diamond-producing countries exported 99 per cent of the world's diamond in 2015.
Approximately 85-90 percent of all diamonds are found in kimberlite pipes. About 10,000 kimberlite pipes are known in the world. Only about 1,000 of them are diamondiferous (contain diamonds). Of these, only 100 pipes are (or were) economically suitable for mining operations - approximately only one percent of the number of kimberlite pipes. Out of these 100 tubes, currently only 26 are operating diamond mines, and about half of them have crossed half their lifetime. Billions of dollars were invested in exploration work to find new resources - with very little success. And prospective diamond mines do not compensate for the depleting reserves of old mines.
Diamonds are found in different regions. In those regions there are very few viable resources. In 2015, about 127 million carats of diamonds were mined. You may think that this is a lot, but only 15 percent have a jewelry quality. Carat is one fifth of a gram, so out of a total of 127 million carats, only 19.05 million carats have a jewelry quality, or about 3,800 kg per year. You should know that about 65 percent of the weight of the diamond is lost during the cutting and polishing. Therefore, out of 19.05 million carats of diamonds of jewelry quality, about 6.6 million carats are produced, or about 1,330 kg of jewelery quality diamonds. Of these, only 40 percent are diamonds weighing one carat or more. This is about 2.7 million carats, or 533 kilograms. About a quarter of diamonds weighing one carat and above, or 133 kg, Are suitable for preserving value or investment. That is, they weigh over one carat, have a color index of H or higher, a purity of VS or higher.
This means that out of 127 million carats of diamonds mined in 2015, we will receive only 665,000 carats of diamonds, suitable for use as assets to preserve wealth. This is only 133 kg per year.
In the period from 1999 to 2008, the cost of exploration increased by 26 percent. The motivation was the reduction of reserves and the desire to find new diamond sources. This ended, and in 2009, the costs of exploration fell by about 64 percent. Currently, the leading diamond mining companies are focusing on optimizing existing resources rather than conducting exploration work. Diamonds hide deep in the bowels of the earth. You can say they are hidden in a very deep storage. In order to open this storehouse, special skills are required that are not easy to acquire, and very large funds, so only a handful of companies can deal with this. On the other hand, this means that we can not expect that someone will simply appear and start mining diamonds, And at the same time the volume of supply will immediately increase. Therefore, given the reduced resources for diamond mining and the fact that a small number of diamond mining companies are reducing their exploration costs in general, the amount of diamonds that can serve as assets for preserving wealth will decline over time.
All this indicates that diamonds are an unusual creation of nature. This very long process means that we can not expect nature to create more diamonds during our lifetime. Or during the life of any of our descendants, at least those to whom we can expect to leave an inheritance.
We also can not produce diamonds based on demand - as some countries print money. So inflationary forces act on diamonds in a different way.
The only conclusion we can draw from all this is that diamonds that are suitable for use as an asset for preserving wealth are rare. And rarity is an economic indicator that is widely used in asset trading. The category of diamonds as an asset for preserving wealth may include diamonds weighing two carats and higher, having a color score of H and above, purity of VS and higher. They may include even smaller diamonds, for example, diamonds weighing 1 carat in color H, "without flaw." Having high-quality information, the necessary education, conducting constant marketing and having an understanding that diamonds are rare, we can bring this to the consciousness of other people and show an untapped opportunity
http://www.ehudlaniado.com/home/index.php/news/entry/from-tulips-to-diamonds-rarity
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