An article that appeared on Bloomberg yesterday may have caused concern for some investors in the diamond industry, but I do not believe that is too much of a problem – and I’d like to explain why.

The article was about synthetic diamonds – and their impact on the diamond industry. At first glance, the article could be read as a portent of doom for the industry as cheaper, more “ethical” diamonds can be produced in a laboratory.

Bloomberg said that there may be trouble ahead for diamond producers as diamond buyers switch to lab-grown gemstones from the natural product. I don’t believe that this is the case.

This followed much chattering amongst the diamond community after the Gemological Institute of America began grading the quality of synthetic diamonds

What utter nonsense; ESPECIALLY the part about lab diamonds being “more ethical”. It’s almost as ridiculous as the people who call biofuels from palm oil “green”.

For a start, would you buy a diamond for your partner that was effectively a fake? Diamonds are usually bought for someone you love as a token of that love. People who can afford a large stone for their loved one will not buy the equivalent of a Ratners fake.

The people who buy fakes will be the people that never would have bought the real thing in the first place. For example, I was in Tukey a few weeks ago so I paid £8 for a fake Dolce and Gabbana t-shirt. The fashion house hasn’t really lost a sale, because I would never pay £60 for a T-Shirt, no matter what the brand was.

The ethical argument is wrong

Once this step has been overcome, the environmental and political arguments remain. Mining is an environmentally destructive activity and blood diamonds fuelling appalling conflicts Southern Africa have been firmly on the agenda.

Although I will not deny that conflict diamonds are an issue, they are becoming less so...

The industry has introduced the Kimberley Process, which tracks the source of the stone and certifies them. I believe that there will be larger harm done to Africa if you take away the source of income for a significant amount of the population. You don’t do a favour to the people of Africa by taking their jobs away. That sort of thing destroys communities and it is not helpful. Not helpful at all. It certainly isn’t ethical.

Lab diamonds are mostly of the coloured fancy kind and very expensive for a “fake.” There is also no exact figure for the amount of diamonds in circulation. Some diamond analysts have estimated that there are around 10,000 carats currently in existence. That is nothing and would not even manage to chip the global industry. Angola alone, for example, produces between 5 and 6 million carats every year.

Of bigger concern to the outlook of the “real” diamond price is the health of the US economy. US consumers buy around 50% of all diamonds, but this is expected to change over the next few years.

A surge in demand is expected from the developing world, particularly China and India. I am bullish on the diamond price – supply of diamonds will be below demand for some years to come, in my mind. If the US can keep out of recession for the next two years, diamond miners really will be able to make hay. Forget synthetics – they are a headline-grabbing side issue. P.S. If you enjoyed this article then sign up for Smart Commodities UK. It’s dedicated to searching out the investment trends that could provide our biggest profit opportunities for the next decade…

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