A worker examining a diamond at the "Keren Or" Factory in
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
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.
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
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
Source: Hayahalom - State of Israel Jubilee edition