In 1938, an ad agency was hired by the De Beers Group- a diamond company looking for help solving a problem of supply and demand.
Before the 19th century, diamonds were legitimately rare. They were beautiful and scarce. Owning a diamond was a privilege afforded to only the very wealthy. However, the discovery of numerous South African mines in the mid 1800’s shook the diamond industry. Suddenly, supply flooded the market, and companies like De Beers found themselves in trouble.
A cartel formed to control the supply and pricing of diamonds, but this wasn’t enough. De Beers knew they had a marketing dilemma.
In the development of arguably the best marketing strategy in history, De Beers and the N.W. Ayer agency in New York set out to create a new social norm, in which love, commitment, and eternity were symbolized by a diamond. The slogan, “A Diamond is Forever,” wasn’t just representative of the durable nature of a diamond. The De Beers Group set out to make diamonds an emotional asset. Because diamonds were plentiful, their value needed to supercede rarity; additionally, it was essential diamonds weren’t in danger of being resold.
By linking diamonds to something intended to be forever, (marriage), the De Beers Group created the idea that if a man loves a woman, he buys her a diamond to represent their eternal commitment. Before De Beers hired N. W. Ayer, diamonds were housed in less than 10% of engagement rings. By 1942, just four years after the campaign began, that number jumped by 55%.
When I think of diamonds, I think of a largely worthless commodity. You can’t rightfully call diamonds an investment because they don’t appreciate. When you walk out of a jewelry store with a diamond ring, your purchase immediately drops 50% in value. Most experts will tell you to expect 10-15% return on your ring if you choose to sell.
Okay, great. How does this relate to precious metals? Well, my question is why are diamonds so expensive while an ounce of highly industrial silver is so affordable?
I think we have a marketing problem.
What would happen if we found an agency who could effectively communicate the beauty and utility of silver to the masses? Silver is used in medicine, manufacturing, electronics, jewelry, and so much more. It’s a chic metal, able to affordably accentuate the beauty of varying socioeconomic classes.
If silver were to undergo the same marketing redesign as diamonds, I think we silver stackers would see our investments accurately priced according to their true value. In the case of silver, I don’t believe the current market value fairly represents what silver is worth. To disseminate an understanding of the utility of silver to the public would radically change the market, in my opinion.
I’d really like to hear your thoughts on a few things this week. What do you think of the De Beers Group and their diamond marketing scheme? How do you think they were able to make a piece of jewelry so desirable and expensive amidst a flooded market? What do you think about the current price of silver versus its aesthetic and industrial value; do you believe it’s undervalued? How do we create an understanding
of its worth?
If you’re like me, the silver lining (sorry, I couldn’t resist) is that, while silver is still undervalued, we can stack our piles more affordably. One great option is the 10 oz Sunshine Silver Bar, on sale now.
Happy Stacking!
-J
Silver is mined, today, at a 10 to one ratio. There is more above ground silver than gold (silver is consumed as where gold is not). The gold and silver price is greatly suppressed thru the sale of ETFs which are paper contracts for which only a fraction of the gold and silver being sold exists. Therefore creating an illusionary supply that does not exist but in paper, so in this case the law of supply and demand is flawed for physical. If the US were to price gol and silver by dividing the M2 money supply by the physical ounces it says it has then gold would be priced at roughly $10k/oz and $1k/oz respectively.
Edit to the first post. There is more above ground gold than silver.
-J
Not only is your article very thought provoking, so are the responses.
No, I don’t think silver suffers from a lack of marketing, but I do agree that the De Beers campaign was more than brilliant and it’s still being used today. I don’t think all the marketing in the world will change the supply and demand for silver, it is what it is.
Although the ratio of silver to gold occurring natural in the earth’s crust is 17.5:1 and was artificially locked into that price by the US government before 1933, it’s now an open market. According to Forbes.com, Russia and China accounted for purchase (hording) of 483 tonnes of gold in 2015. That in itself explains why we’re looking at a 72:1 silver/gold ratio. Unless there’s an increase in demand for silver I don’t see that ratio changing that much.
I do think the price of gold will eventually fall, whereas most others predict a $2,000 to $4,000 range. China can’t possibly keep up that pace of buying while simultaneously devaluing its currency.
What I find even more puzzling is the Fed is also one of the largest purchasers of gold bullion and I don’t think Ms. Yellen has been asked about that once. Really, are we back on the gold standard or are we still off and if we’re off, what’s up with these huge purchases of gold? I’ll need to look it up as to whether they’re using tax payer dollars for that.
I was on a Boy Scout ski trip this weekend so I’ll keep my response short.
Full disclosure: The US capital markets continue to set records and I’m still on the sidelines. I hope I don’t become the poster child for the age old saying of “It’s time in the market, not timing the market that counts.”
All the best,
Eric
Right? These might be the best responses thus far.
I’m curious why you think a strategic marketing plan couldn’t change the price of silver. Why do you think it worked for diamonds, but couldn’t work for silver? I don’t know if it would, but I’m interested to hear your thoughts.
I don’t trust the Fed as far as I could throw a kilo of gold. (which isn’t very far since I’m back in a sling this week).
-J
Hummmm You’re in a good spot and your answer may be within reach. Elemetal actually deals in Gold, Silver and Diamonds, so they may be able to offer some sort of historical data to answer the question, if it brings a sated answer.
Think of this, Diamonds are graded pretty critically. There’s the cut, clarity, carats and all that jazz. I am sure there many pitfalls in the diamond industry, like buying fragments that total a carat, but may not be suitable for settings in jewelry. I do not want to think of the income required to stash away diamonds. If doomsday ever happens, its going to be extremely hard to barter these as many places won’t know what to base prices on. Its a commodity in a normal environment that one can assume a good price point.
Silver on the other hand – has gone through its drastic changes. Wasn’t it in the late 1800’s that siler and gold were closer in price? I think I read somewhere that the ratio was close to 16:1, vice the 72:1 or so that we are currently at.
I am in a position that I can buy silver when I need to. I like that precious metal and I own zero ounces of Gold. Gold is too volatile for me, and the roller coaster prices that are exhibited every day always thwart my desire to buy gold. Silver is a good investment, and most can be sold back to a major distributor if you have more than $10,000 in silver, which is close to 550 ounces. A roll (20) can be had at close to $18-19 an ounce ($360-380) and for some that’s achievable amount. Buy one roll every other month and suddenly your stacking close to 120 ounces a year.
Jewelry in general is WAY overpriced. I was exposed to a jewelry wholesaler plan many years ago, and I realized that the jewelry markup was close to 80% of what it cost to manufacture. Since the markup is so drastic, people think they are getting a great deal when companies lower the prices from say 25 to 40% original prices.
You’re so correct. Jewelry is a racket. I’d rather receive a CZ pair of earrings that look authentic and have a nice weekend experience than get a pair of diamond earrings and eat Taco Bell. Chances are, I’ll lose the earrings anyway. 😀
-J
Greg Campbell’s “Blood Diamonds” is a great book and speaks to the De Beers cartel and how they for all intents and purposes own the global diamond industry. That aside, the questions are what do we think of De Beers? I think they would do and say anything to keep its diamond monopoly . . .anything. What do we think of their marketing scheme? Brilliant. One of the great mind-screw marketing schemes ever and still effective to this day. How to make jewelry expensive amid flooded market? Women. Women wanted it and demanded it; and men want women. Call me what you want, it started with women. When one can create an institutional marketing scheme and own the global industry at the same time, one can make A LOT of money.
And the red-headed step child of all commodities . . .silver.
OK, how do we get the world to “get” the silver commodity? It will not happen with marketing. That ship has sailed with De Beers in many ways. We are not talking apples to apples either. Let us not forget, we operate in a manipulated system of backwardation. True price discovery will not be realized in such a system unless the manipulated system cracks, or it is reformed or the manipulators want it to be realized. I know, sometimes we forget this truth, that is why I’m here to remind us and pull us back to these realities.
In the meantime, as long as the price of silver is manipulated lower, I highly recommend stacking some if possible.
Hahaha! It’s all women’s fault! We just need women to appreciate silver, now. 🙂
-J
Very interesting article, I have recently tried to discuss silver vs. diamonds with my girlfriend. You’re certainly right about the great marketing of diamonds! Although she understands the many upsides to silver, GF adamantly sticks to her position of diamonds above all, at least when it comes to receiving that one ring to rule them all…
I suspect silver will continue to be trashed until our financial structure changes or a massive paradigm shift occurs among the investing public.
It’s just too profitable for the powers that be to trash metal as “risky” and promote the paper they create and sell as “safe.” And many people hold that paper, thus hold (tightly) to that same view.
However, a low regard for the value of silver is also beneficial for savers and stackers of metal who abhor paper assets.
This almost paradoxical opportunity for collusion between such disparate market participants makes me suspect no revaluation of silver to its true worth based on scarcity and utility for still some time longer than it rationally should.
You are right; it is beneficial for us stackers while we invest….but I’d like to see my stack’s value skyrocket in value some day. And then, MAYBE, I might look at diamonds. But, probably not. 🙂
-J
DeBeer’s campaign was pure genius. I connected a commodity to an emotion and it was an emotion and event that transcends borders and languages. How did they make it so expensive? When you control the supply channel, you set the price, not the merchants or customers. As everyone made money on these, for whatever reason, deep discounting never happened. Probably because it’s not a consumable that has a repeat customer base, say like groceries or even a car.
As long as I have been alive, silver has always been the cheaper alternative metal for jewelry etc. It was the choice of those unable to afford “the good stuff”. That I think still is part of it’s perception today. Real nice and shiny, but it just ain’t gold, no matter how you cut it. All the industrial use, IMHO, suppresses the value of the metal. The properties of silver have a “value” to the industries, and if that value is exceeded by price, industries will look for alternative choices. Seeing how industrial use far exceeds collectible, jewelry and financial hedge protection uses, industry is going to call the shots for the time being. If industry found a cheaper alternative to silver’s properties and switched, we would most likely see a glut in the market, which would drive pricing lower, at least for a while. So yes, I think it is undervalued but I honestly think it will take industry using something else, before silver can find it’s true value for it’s other uses.
How do you create an understanding of its worth? Have Elemetal open up “an exchange” where silver is traded by everyday small time investors. No options, no contracts, deal in real metal that is either stored or delivered. Let people see they can make some money and the commodity also has demonstrable investment value. Sure we know of the etfs, and Comex etc, but those are abstract digital or paper transactions. You have to connect the market to the actual metal. As we are now, our choice to exit our positions is the LCS or a place like Provident metals. Because of the costs and hassle, exiting now is often times for emergency or we are leaving a long term investment. There is no option to buy $500 on Friday night and sometime on Monday, roll it picking up a few percent for a short term investment. THAT would change the perception of what silver really is !!!
“All the industrial use, IMHO, suppresses the value of the metal.”
Very interesting point. I can see how the real marketing campaign might be enacted from industrial users of silver in order to keep costs down!
-J