Why are diamonds and gold historically valuable

The history of diamonds

A water pump leads to the establishment of a company

In early 1871 a young man named Cecil Rhodes came to South Africa. He too was drawn to the funding agency, on the edge of which 50,000 people now lived. The then 19-year-old began his career by selling ice cream and drinks to the miners.

In doing so, he observed a problem that all mine owners had. The deeper the mines got, the more water was needed to wash the diamonds out of the rock. However, too much water increased the risk that the walls of the mines would become unstable and collapse. To solve this problem, Rhodes imported a water pump from England. When the water pump arrived at the Big Hole, the mines were once again filled with water and the mine owners immediately borrowed the pump from Rhodes.

His entrepreneurial skills were finally recognized by the Rothschild family, who provided him with the necessary start-up capital to found his - later world famous - company “De Beers”. Over the years he took over further shares until he finally had control of all mines and became the largest owner of diamond mines in South Africa. In 1902, Rhodes died at the age of 48.

De Beers becomes an empire

One year after the death of Rhodes, the native German Ernest Oppenheimer took over the management of the company "De Beers Consolidated Mines Limited". For several years now, Oppenheimer had been running a company in Namibia that specialized in the mining of gold and diamonds.

Thus Oppenheimer was a suitable man to take over the legacy of Rhodes. Oppenheimer's goal was complete control over the production and distribution of diamonds. With the support of American bankers, he continuously took over more and more shares and after 27 years secured all shares in De Beers.

With the advent of huge diamond deposits in South Africa in 1867, the price of diamonds fell continuously over the years. From the then Polypol at the beginning of the 1870s, when the market was dominated by many small, independent mine owners, the market changed with increasing influence from de Beers to a monopoly.

Almost 30 years later, de Beers' market share was 90% of the world's diamond production. A well-known quote from Ernest Oppenheimer expresses how he wants to change the market in the coming years:

"Common sense tells us that the only way to increase the value of diamonds is to make them scarce, that is to reduce production." consists of making them a scarce commodity, that is, of reducing production. ")

So the goal was an artificial shortage. And so in the following years diamonds were only sold through a single sales channel, via the central office in London. Diamonds that were already on the market were also bought up. De Beers had found a way to bring the mined diamonds under their control and only sell them to selected dealers. With these measures, the price could be kept stable.

Smart marketing for a wonderful product

One problem, however, remained: the general desire for diamonds continued to decline among the population. Only in England and France was the diamond still regarded as a gem of the aristocrats. In addition to the poor market situation, the economic crisis at the beginning of the 1930s made matters worse. People stopped investing in luxury goods like diamonds as the general recession drained private wealth as well.

Finally, in the 1950s, New York marketing professionals were hired to help boost demand for diamonds again. They developed a hitherto completely unknown strategy that had resounding success. The great women of the film world were skillfully equipped with impressive diamond necklaces and magnificent diamond rings. Apparently by chance, the noble treasures were now to be admired in the tabloids every day.

The strategy had a second component that was even more subtle: You developed your own prose texts - romantic books for teenage girls - in which diamonds were the central element and which were charged with a lot of romance and heartbreaking love stories. The resulting literature was mainly offered to American colleges as free teaching material.

Young women, for example, have been influenced by the repeated claim that diamonds and real love are inextricably linked. Advertisements in newspapers and magazines, in which fable and art motifs were the dominant element, cemented a myth that we still know today: diamonds stand for eternity and symbolize real love.

Their client, De Beers, benefited most from these sophisticated measures. The strategy worked, no other gemstone in the world has as many positive properties associated with it as a diamond.