During a crisis complicated not only by a prolonged price correction, but also by doubts about the basic foundations of demand, stakeholders need a positive picture of the future more than ever. Martin Rapaport tried to create it. Smart and responsible jewelers and dealers can become beneficiaries of two growing processes, he said during the Rapaport Breakfast at JCK 2025.
One process is the wealth transfer within affluent US families, when quite successful baby-boomers’ children - the Gen X-ers, millennials and Gen Z-ers - are expected to receive the capital of their baby-boomer parents. This money, according to Rapaport, may partially be used to buy luxury.
Part of the inherited fortune was converted into jewelry long before this, and the heirs will need an expert opinion to sell their parents’ jewelry pieces. And this is one, but not the only, driver of the second process - the growth of the second-hand jewelry market. The revival of a second-hand market is also facilitated by President Donald Trump’s tariffs.
In addition to the immediate benefits for the US jewelers, this trend is beneficial to a wider range of the diamond industry players. The easier and more profitably the owner can sell diamond jewelry, the faster other customers will come to jewelry stores to make new purchases of jewelry items.
According to the Rapaport Group’s chairman, they should be attracted by the idea of the exclusivity and rarity of natural polished diamonds as:
- a proven means of preserving value,
- goods whose production process has made local communities richer,
- ethically sourced jewelry items with a transparent history of their traveling along the ‘diamond pipeline’.
The last argument is about the role of verified origin in value adding. The problem is that tracing is not applicable to second-hand polished diamonds. The origin and ethical tracing of polished diamonds from a grandmother’s necklace will remain a secret, and no blockchain can yet answer the question of where this stone comes from, whether a terrorist group was the final beneficiary of the funds, and whether child labor was used in diamond mining.
However, even if these two ideas cannot align with each other, they still have a right to exist separately, being beneficial for various stakeholders. “Nothing wakes markets more than competition,” said the resilient Rapaport on this topic.
China will remain a problem
The sluggish demand for diamonds in China is among the reasons for the crisis in the diamond market. Probably, it is not worth relying on the demand recovery, Rapaport believes. Any trade with China is now embedded in the context of the economic confrontation with this country and the interests of the US national security. China’s economy facing the consequences of the real estate crisis in recent years, is expected now to experience the effect of tariffs and sanctions. “So I would not expect that Chinese business for diamonds is going to go booming tomorrow. It’s OK. Let’s do business elsewhere,” he urged.
India, the main supplier of polished diamonds to the key US market, ranks second now, having outpaced China. But even in this case, things are not so simple. The reverse supplies of polished diamonds and jewelry from the USA to India were virtually impossible even before the US tariffs were announced this year. There was a 5.76-percent duty on the US polished diamonds and a 28.5-percent duty on jewelry (plus some opaque levies, Rapaport says) in India even before the US tariffs were announced this year. As a result, the trade deficit with India in the polished diamond and jewelry segment has reached $126 bn since 2000, or 22% of the total turnover in this sector. “India is selling America and not letting America sell India...India is going to have to change their policy or they are going to suffer,” Rapaport said.
LGDs were a problem only for those who sold at a premium
However, Rapaport believes, responsible market players should not worry about synthetics (lab-grown diamonds, LGDs).
“I am not against synthetics. If you bring me some diamonds from unknown source and you bring me synthetic diamonds made with solar energy, I’ll probably bye synthetic diamonds from an ethical perspective. But just tell me the truth,” he says. There is nothing wrong with synthetic diamonds, if all the data about them is disclosed and the price gouging stops, Rapaport believes.
The plunging prices for synthetics (in some liquid positions, the price difference with natural stones reaches from 97% to 99%) entails very serious reputational consequences for unscrupulous market players selling lab grown diamonds at a premium, “for thousands of dollars”. “How is she going to feel when she sees that same engagement ring in Walmart [for $299]?” Rapaport asks.
Synthetics have democratized the consumption, making a breakthrough similar to the one the Indians made in the 1970s when they began to cut and polish non-gem quality (now called ‘near-gem quality’) diamonds amid the shortage of rough diamonds. He is convinced that lab grown polished diamonds, however, cannot maintain value in the long term, and the future stage of development of this product will be their competition not with natural premium polished diamonds, but with zirconium and moissanite.
The fact that 55% of engagement rings in the USA already studded with synthetic diamonds is not really that dangerous for the natural diamond market, Rapaport believes. He hopes that against the backdrop of a rapid collapse in prices for lab grown diamonds, it is becoming increasingly clear that the main value will continue to be created in the key segment - the sale of high-end natural diamond jewelry to wealthy clients. Their desire to spend money on polished diamonds should be encouraged (The cow wants to give the milk as much as the farmer wants the milk), conducting well-thought marketing campaigns focused on the exclusivity of natural diamonds and the training of jewelers. The industry should focus on wealthy buyers, as they generate the greatest profit, and the budget segment can safely be left for lab grown diamonds, Rapaport believes.
“Natural diamonds are not for people who want to save money. Natural diamonds are for people who want to spend money. Natural diamonds are not for everyone,” concluded the chairman of the Rapaport Group.
Diamonds are forever, little old ladies are not
Despite the current problems, the US market is ready for a boom, with the mass wealth transfer from generation to generation as a driver for it, Rapaport believes. “The diamond business in the USA is expected to grow, with opportunities for smart and responsible jewelers and dealers to make good money,” he believes.
Rapaport calls this process “The Great Wealth Transfer”. Inheriting wealth from their affluent baby-boomer parents, Gen Xers, millennials - already well-educated people with good jobs and their basic needs satisfied long ago - would suddenly become owners of millions of “extra” dollars. Where they will want to spend the money, Rapaport asks. His answer is obvious - to buy luxury, of course.
In addition to money, heirs will also have their parents’ jewelry pieces, they will want to sell some of jewelry, which opens up new opportunities in the resale segment. “Billions of dollars of pre-owned diamonds, gems and jewelry in the US” will be “looking for a new home... We have to grab our fair share of that wealth transfer... Jewelers can make a lot of money buying and reselling diamonds and jewelry, if they are smart,” Rapaport says.
Over the next 25 years, Rapaport estimates that this wealth transfer among affluent families will be worth $5 trillion a year. “And you are telling me we can’t sell the diamonds in USA? You are kidding me. We have an opportunity here, you would not believe.” he is convinced.
Demand for second-hand diamonds and value preservation
The second-hand jewelry market can indeed see a surge similar to the one the sellers of pre-owned luxury watches have seen amid tariffs imposed on Swiss exports to the USA, writes Rob Bates of JCKonline. In addition to tariffs that make it more expensive for the US jewelers to buy new polished diamonds, the recovery of second-hand diamonds could be facilitated by a high price for gold encouraging owners of gold jewelry items to part with them.
If retailers increase their investment in buying the second-hand jewelry items, this business could become more competitive and consumers could get more money for their goods, Bates writes. That can help natural diamonds, says analyst Paul Zimnisky, by enhancing their image as ‘stores of value’ like the revival in the pre-owned watch market, probably, have boosted the watch industry.
Even before the news about the US tariffs, Walmart had partnered with luxury resale platform Rebag to resell the luxury goods, adding tens of thousands of pre-owned vintage bags, jewelry items, and watches to its trading platform. Selling pre-owned goods is in line with Walmart’s commitment to sustainable development, provides access to brands that customers might not otherwise be able to buy, and attracts fashion lovers or collectors, according to Michael Mosser, vice president of Walmart Marketplace.
Ethical Standards and Marketing
Rapaport says, to compete for the wealthy heirs’ dollars, it’s necessary to show why these goods [diamonds] are better than a trip to Las Vegas or a new iPhone.
That’s why aggressive marketing of natural diamonds from legitimate and reputable sources is important, he believes. Marketing is based on compliance with sourcing standards and development of efficient tracing the diamonds.
The first standard includes the usual principles like avoiding any abuses of human rights in diamond mining and manufacturing; focusing on the benefits of diamond mining for the countries and areas where it is carried out. Unlike synthetics, natural diamonds contribute to the development of social infrastructure through fair compensation and taxes paid in the countries of diamond production. “Show me show me the hospital!” … Where are those synthetic hospitals?” (i.e. a similar contribution of lab-grown diamonds), Rapaport asked pathetically.
Financial transparency and ethical sourcing are also required. “Should I know where my diamonds come from?... It could be ending up with Hezbollah or Boko Haram? …You are responsible for where your money goes,” he says. “Please… don’t buy diamonds if you don’t know where they come from,” Rapaport asked.
According to Rapaport, the traceability standard should involve 5 steps:
- Rough scan by a mining company (ethically acceptable), adding it to an approved blockchain database,
- Rough scan by diamond manufacturer, adding it to the blockchain and confirming its compliance with the original scan by the mining company,
- Scanning the production process to confirm the diamond origin from a previously scanned diamond,
- Final polished diamond scan,
- Proof positive that the uniquely identified polished diamond originated from uniquely identified rough diamond (in a GIA certificate or a certificate by any other reputable laboratory).
Polished diamonds undergone this procedure receive the status and a special GreenSource Diamonds certificate and they are posted on RapNet. The De Beers’ Tracr platform is currently working on implementing a similar certification standard. This year, the rough diamonds by Botswana’s state-owned Okavango Diamond Company will be also registered on this platform in addition to the rough diamonds by De Beers and Canada’s Mountain Province. Thanks to the partnership with Sarine, the Tracr’s database receives the information about the ‘transformation’ of rough diamonds into polished ones, which makes it possible to track the entire path of the gemstone from ‘mine to finger’.
At present, De Beers owns 100% of Tracr, which raises concerns about manipulating the information received. Commenting on this issue, De Beers’ CEO Al Cook called on market players to follow the example of GIA that will acquire a share in the online platform’s capital. De Beers’ goal in this project is not making a profit, but creating an industry-wide tool, he explains.
The implementation of the traceability standards and the related technological capabilities opens up a rare opportunity for the US jewelers and dealers to increase their income, Rapaport believes.
Technology that allows every polished diamond over 0.5 carats to be traced, telling its unique story, is of huge help to the diamond industry, according to Al Cook. He said that De Beers was also interested in getting a premium status by ethical, sustainable and responsible polished diamonds.
However, not many people in jewelry stores ask where the polished diamonds come from, Cook complains. De Beers’ CEO thinks that’s strange, because people are usually interested in the origin of meat or coffee they eat, or the cotton their clothes are made from. “We need to work with them so they become curious because they deserve to know where their diamonds are from, they deserve to know that those diamonds are responsible, ethical and sustainable,” Cook said.
The problem of lack of interest will be naturally resolved as tracing becomes more widely used, when customers in jewelry stores will see a range of certified diamonds from responsible sources (coming from Botswana, Angola, Canada) and some polished diamonds of unknown origin, Cook says. De Beers’ CEO is convinced this will inevitably raise questions and attract the customers’ interest to the diamonds from certified responsible sources.
Sergey Bondarenko for Rough&Polished
