The 1970s were heady times for the diamond trade. Sales grew at a faster rate than ever before recorded. In part, this was a result of a broadening of the market, especially in the Far East (particularly Japan). But also, it was caused by the diamond's becoming a popular investment tool.
Diamantaires had traditionally tried to discourage the use of the diamond for investment purposes. The reason was simple. If the diamond established the reputation of a tradable commodity, this could threaten the price structure. If prices were seen to fall, as well as rise, the "diamond is forever" image would be damaged, possibly irreparably. But by the end of the decade, with prices rising almost daily, members of the trade themselves were investing in diamonds. De Beers sight boxes could be sold the next day still sealed at a 10% premium.
A 1 carat D flawless diamond was valued at $64,000, many times more than it had been just a few years earlier. In Israel, where credit at the time was subsidized and inexpensive, the debt of the industry to the local banks rose to equal the entire annual export of the industry. Three major banks were said to be holding diamonds worth $1.5 billion as collateral. And then prices plummeted, as the world economy slid into recession.
Within a year and one half, the price of the 1 carat D flawless was cut by two thirds. The Central Selling Organization reacted by curtailing its sights. The number of sightholders fell from 360 to 150, and numerous diamond firms filed for bankruptcy. In 1984, the trade finally emerged from the crisis. Some of the most famous players no longer were present, having gone under when the bottom fell out of the market.
Credit was tighter, the CSO (Central Selling Organization), which was an arm of the Diamond Trading Company, was more conservative, and the community was more realistic about its limitations. At the CSO there was a resolve that such a situation should never again be allowed to develop. A new department, dealing with marketing liaison, was created; its task was to keep tabs on what was happening in the diamond pipeline after the rough was out of De Beers' possession. The term "pipeline" refers to the path diamonds follow through rough trading, cutting and polishing, polished trading, and into the retail jewelry stores.
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