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Home > Israeli Diamond Industry > History > 1970s

1970s

The Israeli Diamond Industry in the 1970s

By Shira Ami

When the chairman of the HaYahalom editorial board, Chaim Danieli, asked in early 1970 whether the diamond industry was in crisis, nobody even considered a crisis like the one that began at the end of that decade. What he wrote at that time is true to this day in times of economic decline and a grim atmosphere:

In 1978, anyone walking through the corridors of the exchange buildings and diamond factories could feel the concern in the air. In addition to the difficulties created outside the industry – the CSO’s price rise and problems in the market – there were also troubles at home: the burden of interest and credit.

diamond
 Yaacov Saar Enlarge
 

Customers examining jewelry in the showroom of the ‘Keren Or’ factory in Ramat Gan in the 1970s -

Courtesy of the Government Press Office

By 1979 there was no doubt that the diamond industry was experiencing its deepest crisis since 1947. Some believed that the crisis began in 1978; in retrospect, others pointed to 1976-1977, which were at the time considered very good years. Many felt that there was no way out of such a deep crisis. Perhaps the most important lesson from that difficult period, then, is that the diamond industry always finds a way out, whatever the situation.

The reasons for the crisis were many and interrelated, and each individual ascribed different weight to one component or another. Then Exchange President, Moshe Schnitzer, explained that “the roots of the crisis are objective and universal. The world entered a very deep recession, which took on a special character: recession on the one hand and inflation on the other. To fight this, interest rates were raised throughout the world; no business can cope with 21% interest. Under these conditions, the Bank of Israel ordered the reduction of 25% of the diamantaires’ debts to the banks . . .”

Diamond Division director, David Jakubowicz, sums up the crisis, in retrospect:

“Surprisingly, the roots of the crisis can be found in the office of an anonymous analyst in an American investment company, which seeks, among other things, investments that will yield high returns over a long period of time. In addition to arousing the curiosity of investors, such findings sometimes arouse the curiosity of the general public, as well. Some say that this information can help in decision making regarding investments for the future.

diamond
 Yaacov Saar Enlarge
 

A worker examining a diamond at the "Keren Or" Factory in Ramat Gan in the 1970s - Courtesy of the Government Press Office

In 1976 or 1977, this analyst’s firm discovered that diamonds had yielded the best returns in the course of the decade. This discovery aroused the interest of the general public in the United States, many of whom owned diamond jewelry and were pleased to hear that they had made a good investment.

This interest was translated into deeds. Among other things, the public was encouraged by a headline in Newsweek: “The Action is in Sparklers.”  Later, funds were established that invested in diamonds and invited the public to invest their money. Institutional investors were wary of investing in just any type of diamond. This was before the time of Rapaport, and they didn’t want to hold diamonds that were difficult to define and assess. They preferred diamonds of clearly defined, high quality, such as, for instance, one carat of D color and flawless clarity with an excellent cut. If they couldn’t obtain this quality they settled for something close to it.

Thus the prices of high-quality diamonds soared. The price of a one-carat  diamond of the quality described above reached 60 thousand dollars, compared to 10-12 thousand dollars just a year or two earlier. The rise in prices was dizzying; sometimes the price of a package increased 50% within a day or two.

The CSO didn’t react immediately. Perhaps they were pleased with the rise in prices. Later on, the CSO increased the price of rough diamonds by 40%, and also met the entire market demand.

Here in Israel, there were people who got rich overnight. There were also many who took loans from the banks in order to hoard diamonds, on the assumption that prices would continue to rise, that the sky was the limit. The banks treated diamonds as a product almost as stable as foreign currency. They gave diamantaires loans with relative ease. Apparently, they were relying on their past experience in this field.

At the same time, there were also diamantaires who resisted the temptation to take loans in order to buy diamonds; they believed that what goes up eventually comes down.

In the meantime, the jewelers discovered that the general public were not willing to pay the high prices. Instead of increasing their budgets for purchasing diamonds, people bought less expensive diamonds within their original budget. For instance, a person who intended to buy a diamond ring for 1,000 dollars still bought one for that price, rather than adding money to buy his original choice, which had since become more expensive.

It emerged that jewelers were not selling much, and the wholesalers were accumulating stock. After their initial enthusiasm, the investment companies got smart. Some even tried to sell part of the stock they had accumulated. Because they didn’t find buyers, prices began to drop. Buy the end of 1981, they had returned to their previous level. The losses were tremendous.

Some say that troubles come in bundles. The last trouble appeared in the form of Ayatollah Humeini, who returned to Iran in late 1979, creating a revolution and overthrowing the Shah. As a result of the upset in the Persian Gulf states, oil prices multiplied five times and more. This led to a general rise in prices in the world. Inflation hit most western countries. In response, the central banks increased the dollar interest, which reached 20% in 1982.

This was the straw that broke the camel’s back. Anyone who owed the banks money had trouble paying the high interest rates. Even those who had been conservative and taken bank loans equivalent to a third of their worth, for instance, couldn’t survive. The price of diamonds plummeted by 60% to 80% while interest, as noted, climbed to 20%. Thus the Israel diamond industry entered a crisis. It took four years, until 1985, to get rid of the old stocks, to rebuild the diamond industry and to reach the same level of export as before the crisis.

Source: Hayahalom - State of Israel Jubilee edition

By: Shira Ami
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