diamond ringWhen the global economic crisis set in, few segments of the luxury market took it harder than jewelry. Big brands have been laid low and some fairly major retailers, including Fortunoff, Whitehall and Robbins Brothers have filed for bankruptcy. And hit hardest of all has been the diamond industry. While prices for gold (as is typical during uncertain times) have been on an upswing the past few months, diamonds prices have fallen steadily -- even precipitously.

The response from the diamond producers has been to take the well-trod path of cutting supply. De Beers has instituted work stoppages at some mines and reduced exploration projects in Africa and Canada. With fewer rough stones coming out of the mines, the ripple effect has spread to the diamond-cutting and -polishing centers in India. Some estimates say that as many as 500,000 diamond workers have lost their jobs. Many in the industry are wondering what happens next.

The Robert Parker of diamonds

One diamond industry maverick has had enough. Martin Rapaport recently issued a statement demanding fair pricing in the industry and an end to stockpiling. He says that "diamond prices need to be as natural and transparent as the diamonds themselves" and that "De Beers, Russia and Angola might think they are doing the diamond industry a favor by halting production and stockpiling diamonds, but, in fact, they might be laying the seeds of destruction."

Rapaport is to diamonds what the wine critic Robert Parker is to the wine industry, a man of tremendous influence adored by some and abhorred by others. Last year when I went to the JCK conference in Las Vegas, word on the street was that diamond prices were too high. Right before the conference, however, Rapaport raised his own pricing index 25 percent, which didn't sit well with those hoping to do major business during the show. At the time, Rapaport defended his decision saying it was simply a correction based on a steady supplier price raising. Price swings up or down, it doesn't matter to Rappaport -- his whole viewpoint is that the the non-mining profit in the business comes from finding the right buyer for the right diamond at the right price, and the only way to do that is through free, fair, open and competitive markets. The fact that demand is down now is no reason to undertake measures like stockpiling that work against something so vital as opennes and transparency.

Of course, it may be that De Beers just doesn't know what to do. Its production cutbacks aren't just about bolstering prices, after all, they're also about keeping the company afloat until demand picks back up. The problem is that no one seems to know when that will be. Harry Winston (HW), which both markets rough diamonds and buys polished stones, has suggested that we may have reached a bottom in the diamond markets, but an analyst quoted in the Financial Times says that a return to 2007 demand levels could well be a few years off.

Not all the news is bleak. At no other point in history have as many structures been in place to insure that diamonds do some real good for the countries they're mined in. In Botswana, Namibia and some other African nations, diamond revenue is helping to build schools and necessary infrastructure. Young companies like Ruff & Cut are moving into places like Sierra Leone and helping artisan miners get a fair share for their work. Day's Jewelers in Maine sells the "Made in Botswana" diamonds, which are entirely sourced, cut, polished and sold in Botswana.

It's safe to say that diamond jewelry isn't going away. The tradition of the diamond engagement ring remains as strong in recessions as out, and, while prices may be down, the sense of the diamond as a stone of value endures. Cutting production may be what De Beers needs to do to stay viable, but for the public, diamonds are a purchase of emotion. As Rapaport suggests, if people believe that De Beers is manipulating supply to keep prices high, the company may be the one to suffer most in the long run.

Deidre Woollard is the editor of Luxist.

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