Brother, Can You Spare a Diamond? No More Rock-Bottom Rocks!

James Passin is a hedge-fund manager with large investments in diamond mining companies and a theory: prices of the precious gem are surging. To test this, he devised a simple experiment that any woman could appreciate: He bought his adoring wife a fat, flawless 2.34 carat round-cut rock from a dealer on 47th Street.

Two months later, he took it back to the dealer, who told him that his investment had already appreciated twenty percent. Holy crap, thought Mr. Passin, an Upper West Sider. “I was thrilled I bought it when I did,” he said.

Most of those who pull out the checkbook (or hand over the stack of cash) for a diamond these days are paying more and getting less.

Why?

First, there’s the flimsiness of the American dollar. Diamonds have become more expensive in recent months for stateside buyers-individuals and stores alike-since most of the jewels are imported from Africa, Canada and Eastern Europe.

One recent Monday, Londoner James Stacey, 25, was on the second floor of the Fifth Avenue Tiffany store, staring into a glass case filled with engagement rings and hoping to capitalize on his exchange-rate advantage. He wanted a diamond band and a single solitaire “as close to one carat as I can get” for the love of his life, a New Yorker named Elizabeth who works in an art gallery in the East Village. They met in England while she was studying at Sotheby’s, and he plans to propose to her sometime this summer. In anticipation, he’s been researching rings for months.

“I’ve heard that prices are going up all over the place,” he said, “but I thought maybe there were better deals in America.” So, any luck? He smiled wanly. “None yet.”

The stone that Mr. Stacey is looking to buy should cost in the neighborhood of $7,500, which is about $500 more than it would have cost in 2002, said Robert Hensley, the president of Diamond Developers Inc., a clearinghouse for diamond information and prices. That’s not a huge spike, he said, but it could be the beginning of something big.

“Demand for really high-quality stones is extremely high-that is forcing prices to go up. Because of Internet and competition pricing pressures those increases of rough diamond prices haven’t hit consumers yet. That will be coming. We’re all expecting it to come up soon,” he said.

Until 2002, the South Africa–based company DeBeers had a monopoly on the diamond supply, and the wide-eyed couples cruising the diamond districts were at its mercy. This summer, as widely reported, DeBeers settled anti-trust charges brought by the Federal government, quietly sold down the last of its stockpile and announced plans to open up a New York store in June, its first in the States. The company now mines, cuts, polishes and sells many stones directly to the consumer. (A message left at DeBeers’ London office was not returned.)

In recent years, demand for diamonds has increased and new mines have not been discovered quickly enough to keep pace, Mr. Passin said. Most significantly, sweethearts in East Asia have begun exchanging diamond engagement rings, a custom previously prevalent only among Westerners. According to the Shanghai Diamond Exchange, the primary gateway for diamonds in China, the industry did $1.5 billion worth of business last year, and has grown by double digits each year for the last few years. By contrast, the United States did $20.5 billion in diamond business in 2003, only a single-digit increase over 2002, according to the trade group Jewelers of America.

“Any diamond district dealer will tell you, certain sizes are harder to get,” said Mark Turnowski, one such diamond district dealer, speaking in his 30th floor office on the corner of 47th and Fifth. “High-quality stones are more and more expensive. That’s just the reality now.” On the desk in front of him were four colored diamonds (now hot among big spenders thanks in part to the giant pink honker Ben Affleck presented to Jennifer Lopez two years ago) worth close to $10 million. The crunch is especially pronounced for these types of stones, he said: virtually impossible to find, nearly invaluable, and increasingly in demand.

Auction houses have also noticed the squeeze in recent months. A two-day U.S. Treasury Department sale in December 2004 of 822 seized diamonds from fugitive financier Martin Frankel’s collection drew huge crowds and brought in nearly $9 million. Similar precious-gem sales in the last few months have had bidders clamoring, said representatives from Sotheby’s and Christie’s.

“We do feel a pinch,” said Lisa Hubbard, Sotheby’s executive director for international jewelry. “It’s not wild, but we’re getting more and more competition for these stones.”

However, she added, the change will probably go unnoticed by the majority of ring buyers, most of whom come to New York, buy the diamond, slip it on, and don’t look back.

Mr. Passin agrees that his theory has practical limits. “I don’t know about most women,” he said, “but if I told my wife that the ring I bought her is overvalued and suggested selling it and buying it back a few years later, she would tell me to go to hell.”