By Richard Platt.

A new Urban Myth is going round the diamond trade.

“After a recession rough prices always rise sharply”.

It was DTC  Managing Director Gareth Penny who I first heard say this, but I’m sure he didn’t originate it. It has been repeated by many, not just De Beers executives, it is becoming accepted fact and is a great comfort as we survey the current state of our decimated industry. We can look forward to prices shooting effortlessly upward, and all and sundry resuming our pampered lifestyles.

That great fountain of knowledge Wikipedia defines an urban myth as follows:

An urban legend, urban myth, or urban tale is a form of modern folklore consisting of stories thought to be factual by those circulating them. The term is often used to mean something akin to an "apocryphal story." Like all folklore, urban legends are not necessarily false, but they are often distorted, exaggerated, or sensationalized over time.

Let’s look at the facts.

The classical definition of a recession is when there are at least two consecutive quarters of negative real growth.

Since the late sixties in the US this has had six recessions;

1969 Q4 to 1970 Q1

1974 Q3 to 1975 Q1,

1980 Q2 to 1980 Q3,

1981 Q4 to 1982 Q1,

1990 Q3 to 1991 Q1

2008 Q3 onwards.

The table below shows changes to the WWW Rough Diamond Index with years where there was at least one quarter of negative growth highlighted.

Whilst there was strong price growth in the late seventies following the mid-seventies recession, this was a period of high inflation and in real terms prices in 1983 after the down turn  were very similar to levels in 1973 before that down turn.

After the eighties down turn there was a prolonged period falling rough prices and the nineties proved to be an even more troublesome time for the diamond trade following the recession then.

So the myth isn’t true. You can’t just sit back and wait for prices to inevitably surge, and Penny  will have to come up with a more plausible reason for the banks to lend him $4 billion to continue with Supplier of Choice or whatever mythological policy he puts or claims to put in place.

By Richard Platt.