DeBeers is lowering the price of its diamonds by 10%, according to a Bloomberg report I read today. The news service asserts the reason behind this is weakening demand in a high inflation, slow real growth global economy. Put a different way, lowish income growth + still-high prices for food and other necessities leaves little over for non-essentials. Ex the ultra-rich, therefore, diamonds are at the top of the list of what people are cutting back on.

Reasonable, but I don’t think this is anywhere near the whole story. For one thing, the typical initial move DeBeer’s would make would be to restrict supply. So part of what makes the price cut newsworthy is that it signals the first line of defense has already been breached. I think the much more serious issue for DeBeers, however, isn’t over-mining. It’s the development of synthetic diamonds.

How so?

–once pretty ugly looking and mostly festooned on the tips of oil and gas drill bits, synthetic diamonds now hard to distinguish from their naturally occurring brethren. Probably more important,

–tastes have changed. For buyers under the age of, say, 50, it doesn’t matter whether a diamond is manufactured in a lab or mined. What’s more important is how it looks. Arguably, younger customers prefer a synthetic stone over one that is dug up and then cut and polished. The fact that the former is much less expensive is a secondary plus. This would imply that

–naturally occurring diamonds are no longer a store of value and may well already be a wasting asset. If so, their superior portability vs. bars of gold as an off-the-books store of value is probably already lost as a selling point.