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We can't talk about diamonds without talking about De Beers, the company that single-handedly made the diamond industry what it is today. De Beers was founded by Cecil Rhodes, who also founded the state of Rhodesia which later became Zambia and Zimbabwe. The Rhodes Scholarship is also named after him, and funded by his estate. Rhodes started by renting water pumps to miners during a diamond rush in 1867 at Kimberley, South Africa. He expanded into mines and about twenty years later became the sole owner of all diamond mining operations in the country. Rhodes built De Beers into a diamond cartel (well, they prefer "single-channel marketing" and since they're one company, they're technically a monopoly). De Beers mines diamonds, then handle their sales and distribution through various entities (in London, it's known as the innocuously named Diamond Trading Company; in Israel, it's simply called "the syndicate"; in Belgium, it's called the CSO or Central Selling Organization.) If you want to buy diamonds from De Beers, you've got to play by their rules: diamond are sold in events known as "sights." There are 10 sights held each year, and to buy, you have to be a sightholder (these are usually diamond dealers whose business is to have the stones cut and polished and then resold at diamond clearing centers of Antwerp, New York, and Tel Aviv). The diamonds are sold on a take-it-or-leave-it basis. A sightholder is given a small box of uncut diamonds priced between $1 and $25 million. De Beers set the price - there is no haggling and no re-selling of diamonds in uncut form. It is rare for sightholders to refuse a diamond package offered to them, for fear of not being invited back. And those who dare to purchase diamonds from other sources than De Beers will have their sightholder privilege revoked. In the early days, De Beers controlled about 90% of the world's diamond supply. Today, its monopoly on diamonds has been significantly reduced. It is estimated that the cartel now controls about 60 to 75% of the world's diamond trade

De Beers is quite famous for never lowering the price of diamonds. During the Great Depression, the cartel drastically cut supplies and stockpiled diamonds to prop up their price. But do diamonds make good investments? Unless you're a certified diamond seller, the answer is no: you won't be able to sell a diamond ring for more than what you pay for it. And the reason is simple: with diamonds, you buy at retail and sell at wholesale, if you can sell it at all.

Diamonds are actually quite rare in the past but not any more. While it's true that the process of extracting diamond is quite laborious (mines move many tons of dirt per carat of diamond found) and that gem-quality diamonds are relatively few (only about 1 in 1 million diamonds are quality one carat stones, only 1 in 5 million are 2-carat; and 1 in 15 million are 3-carat), diamonds are not rare in an economic sense because supply exceeds demand. (Photo: mafic [Flickr]) To maintain the high prices of diamonds, De Beers creates an artificial scarcity: they stockpile mined diamonds and sell them in small amounts. Perhaps De Beers chairman Nicky Oppenheimer said it best: "diamonds are intrinsically worthless, except for the deep psychological need they fill." (mental_floss, vol 7 issue 6, p. 21 "Diamond Engagement Rings" by Rebecca Zerzan)

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