Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
How to Trade Binance Vanilla Options for the First Time on Bitcoin Crypto's - 2nd Aug 21
From vaccine inequality to economic apartheid - 2nd Aug 21
Stock Market Intermediate Top Reached - 2nd Aug 21
Gold at a Crossroads of Hawkish Fed and High Inflation - 2nd Aug 21
Bitcoin, Crypto Market Black Swans from Google to Obsolescence - 1st Aug 21
Gold Stocks Autumn Rally - 1st Aug 21
Earn Upto 6% Interest Rate on USD Cash Deposits with Binance Crypto Exchange USDC amd BUSD - 1st Aug 21
Vuze XR VR 3D Camera Takes Near 2 Minutes to Turn On, Buggy Firmware - 1st Aug 21
Sun EXPLODES! Goes SuperNova! Will Any planets Survive? Jupiter? Pluto? - 1st Aug 21
USDT is 9-11 for Central Banks the Bitcoin Black Swan - Tether Un-Stable Coin Ponzi Schemes! - 30th Jul 21
Behavior of Inflation and US Treasury Bond Yields Seems… Contradictory - 30th Jul 21
Gold and Silver Precious Metals Technical Analysis - 30th Jul 21
The Inadvertent Debt/Inflation Trap – Is It Time for the Stock Market To Face The Music? - 30th Jul 21
Fed Stocks Nothingburger, Dollar Lower, Focus on GDP, PCE - 30th Jul 21
Reverse REPO Market Brewing Financial Crisis Black Swan Danger - 29th Jul 21
Next Time You See "4 Times as Many Stock Market Bulls as There Are Bears," Remember This - 29th Jul 21
USDX: More Sideways Trading Ahead? - 29th Jul 21
WEALTH INEQUALITY WASN'T BY HAPPENSTANCE! - 29th Jul 21
Waiting On Silver - 29th Jul 21
Showdown: Paper vs. Physical Markets - 29th Jul 21
New set of Priorities needed for Unstoppable Global Warming - 29th Jul 21
The US Dollar is the Driver of the Gold & Silver Sectors - 28th Jul 21
Fed: Murderer of Markets and the Middle Class - 28th Jul 21
Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One? - 28th Jul 21
I Guess The Stock Market Does Not Fear Covid - So Should You? - 28th Jul 21
Eight Do’s and Don’ts For Options Traders - 28th Jul 21
Chasing Value in Unloved by Markets Small Cap Biotech Stocks for the Long-run - 27th Jul 21
Inflation Pressures Persist Despite Biden Propaganda - 27th Jul 21
Gold Investors Wavering - 27th Jul 21
Bogdance - How Binance Scams Futures Traders With Fake Bitcoin Prices to Run Limits and Margin Calls - 27th Jul 21
SPX Going for the Major Stock Market Top? - 27th Jul 21
What Is HND and How It Will Help Your Career Growth? - 27th Jul 21
5 Mobile Apps Day Traders Should Know About - 27th Jul 21
Global Stock Market Investing: Here's the Message of Consumer "Overconfidence" - 25th Jul 21
Gold’s Behavior in Various Parallel Inflation Universes - 25th Jul 21
Indian Delta Variant INFECTED! How infectious, Deadly, Do Vaccines Work? Avoid the PCR Test? - 25th Jul 21
Bitcoin Stock to Flow Model to Infinity and Beyond Price Forecasts - 25th Jul 21
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How the Cartels Ensure Diamonds Last Forever

Commodities / Market Manipulation Jan 17, 2011 - 08:48 AM GMT

By: MISES

Commodities

Best Financial Markets Analysis ArticleSreevathsa Karanam writes: Diamonds are considered a unique resource because the price level is always on the increase without any big swings, unlike other commodities, such as gold, whose prices fluctuate (sometimes violently) in the market.


The constant increase in the price of diamonds is usually attributed to the monopolistic behaviors of the infamous De Beers Group. But the details of the monopoly are concealed from public knowledge, because they involve not only private institutions but also various governments around the world, including the United Nations.

Murray N. Rothbard explained the workings of the diamond industry in 1992:

DeBeers has persuaded the world's diamond miners to market virtually all their diamonds through DeBeer's Central Selling Organization (CSO), which then grades, distributes, and sells all the rough diamonds to cutters and dealers further down on the road toward the consumer.

Furthermore, Rothbard mentions that the CSO was sustained by the support of the South African government:

The [South African] government long ago nationalized all diamond mines, and anyone who finds a diamond mine on his property discovers that the mine immediately becomes government property. The South African government then licenses mine operators who lease the mines from the government and, it so happened, that lo and behold!, the only licensees turned out to be either DeBeers itself or other firms who were willing to play ball with the DeBeers cartel.

Eventually, the Soviet Union also made a deal with the cartel by giving a major percentage of the annual supply to De Beers. And yet this was not complete control over the global supply, because the rest of the diamond-producing nations (such as Angola and Botswana) were not part of it. Rothbard describes why Angola was not able to participate in the CSO:

First, even though the Angolan civil war is over, the results have left the government powerless to control most of the country. Secondly, the end of the war has given independent wildcatters access to the Cuango River in northern Angola, a territory rich in diamonds. And thirdly, the African-drought has dried up the Cuango along with other rivers, leaving the rich alluvial diamond deposits in the beds and on the banks of the Cuango accessible to the eager prospectors.

So with certain major players absent from the CSO, everyone predicted the demise of the cartel due to increased competition. But events took a turn for the worse. De Beers and other quasi-public companies returned stronger than ever with even more control over the diamond-supply market.

What the public ignored was the rise of a subtle tool used by De Beers known as the Diamond Trading Company. The DTC was incorporated as a joint venture between De Beers and the governments of South Africa, Botswana, and Namibia. This lucrative venture effectively allowed them to control 75 percent of the world's diamonds by value. This allowed the price of diamonds to stay relatively high and therefore create an artificial price level for the commodity. However, this was not the end of the deal. De Beers and various governments around the world were on an even bigger mission to control the entire supply of diamonds — this time through the United Nations.

The late 1990s saw the outrage over "blood diamonds," with numerous NGOs asking for immediate regulatory action from the United Nations. Blood diamonds are diamonds mined using slavery and sold for weapons that fuel a militia's (usually a nonstate group) battles. The DTC took advantage of this outrage — in spite of accusations that they too were involved.

The proposed solution to stem the flow of blood diamonds was the Kimberly Process Certification Scheme. The Process set forth the rules that all diamonds mined and sold must be certified as "conflict free." It set up the World Diamond Council to look after the Certification Process. The WDC consisted of the major diamond-producing companies and gave them regulatory authority through the United Nations. In other words, the WDC is nothing but a cartel in disguise.

There are six committees in the WDC, which is currently dominated by representatives from the De Beers Group, diamond companies based in Belgium, and the World Federation of Bourses. The WFB is another small-sized cartel in Antwerp, consisting of 29 diamond bourses.

Any diamond that enters the market must be certified by the WDC; those that aren't are considered conflict diamonds, and the individuals involved are prosecuted.

But this is just a smoke screen for a bigger motive held by the institutions of the WDC. The regulatory authority is used to control the global supply and price by stopping large amounts of diamonds from entering the market.

In fact, the WDC constantly criticizes mining companies that are not part of the cartel and subjects them to criminal prosecution. The latest victims are the Marange rough diamonds from Zimbabwe, which are demonized by the WDC and the DTC as being used to sponsor human-rights violations, when in fact they are a threat to control of the global diamond supply.

All in all, the monopoly supported by certain African governments and the United Nations ensures that the price of diamonds stays relatively high, leading in turn to undeserved profits for governments and corporations.

Sreevathsa Karanam is an economics major at the University of Houston. Send him mail. See Sreevathsa Karanam's article archives.

© 2011 Copyright Sreevathsa Karanam - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in