A significant portion of Elliott Appraisers' assignments involves clients, who at the request of their insurance carriers, bring their fine jewelry for scheduled property additions and updates. Frequently, clients bring old or earlier documentation for some of the items.
Of special interest, and the focus of my comment, are those replacement value documents made between the years 1980 - 1983.
Upon delivery and review of the new document, the response of the client is often predictable. You will likely agree that the value differences in gold, diamonds and colored stones between 1981 and 2005 are probably remarkable; and your thinking will be right. But I'll bet what you think is not what is... Inevitably, clients ask two broad questions; "what happened", and "why?" So I offer the following (also hopefully informative, entertaining and politically incorrect) distillation of what and why.
In the mid-to-late 1970's, Americans witnessed an unprecedented high-cycle in the economy (not to be mistaken for real growth; it was really more like your washer's spin cycle). It was a time of unbridled affluence: at nearly every market level, we contracted what I call "Me-too Fever". That is to say, everyone wanted to jump onto the economic "rocket ship", and (expected) to jump off with their piece of the fortune. [I am not just a critic of open-market capitalism; I am all at once an observer, a proponent and a participant]
*The word "technology" was implanted in the American lexicon. Space travel R&D had given us electronics, computers, microwave ovens, polycarbonates, miniaturization etc. "Technology" inferred an "up-and-over" optimism toward the collective, positive future of every member of free society.
*Housing prices rose as construction flourished on leveraged capital. Money for development was cheap, and flowed without much requisite for security.
However, by 1980 - 1982, America had been presented with the unpalatable "big picture" of things to come; of the "new world economy". The Carter Administration, feckless and immobilized by fear, fumbled with the Iran hostage crisis, fueling a panic in nearly every commodity and consumer market. And there were other factors:
*OPEC again flexed its muscles against the world by manipulating crude oil supply amidst the fluctuating embargoes (auto parts stores in the US made a small fortune selling locking gas caps), as gasoline reached over $1.25 per gallon. Japanese auto makers discovered the critical "chink in the armor", forcing American auto makers, at "near-gunpoint" to change or perish (actually, that turned out to be a good thing).
*The prime interest rate rose to a nominal 14%. The Carter administration moved to re-engineer the cost of living index, stealthily omitting some pesky, index-wrecking, double-digit-making things such as consumer interest rates, and fuel cost; thereby bringing the index back to single digits.
*The Fine Gold Index rose briefly past $800 / oz [Today, gold is hovering in the mid $400's]
*Fine Silver (thank you, Hunt brothers) traded briefly past $25 / oz [Today, silver is behaving around $7]
Not to lose the focus of my comment, suffice to say most market structures underwent a pandemic spasm. More specifically, in the gems and jewelry world:
*The DeBeers Group (the original supply-master, and distribution controller of most of the world markets' rough diamonds), began manipulating supply against demand (1979 to 1980); successfully driving the price of a "benchmark" 1 carat - D color - flawless diamond to a nominal $36,000.
*In the US, this was further complicated by a small number of rogue dealers who portended diamonds as investments; alluding that they would (as a commodity), bring a percentage return. In March, 1980, the 1 carat-D-Flawless diamond peaked very briefly at about $66,000! Ensuing actions by the SEC, in tandem with a strong market rejection, effectively derailed the phantom market. By January, 1986, the same benchmark diamond was trading at $12,600. [Today, some 19 years hence, a 1 carat-D-Flawless round diamond trades around $18,000]
*To a lesser extent, prices for colored gemstones were affected by the "me-too" fever. For a short while, even the most ignoble of colored stones were packaged and sold as "an important component to any investment portfolio". Fortunately, the prime sources and markets for colored gems were, and remain decentralized (quite unlike diamonds); and forstalled a widespread market "hiccup".
CONCLUSIONS
I have purposely not included the dozens of ancillary, dry facts and contributing factors; which would have made this piece an exceptionally long and boring one. So; to close the loop I submit the following:
*Most appraisal documents from this period merely reported the market facts of the day. At nearly every market level, wholesalers, retailers and consumers "bought high".
*The dynamic of any market, then and now, remains the same: changeable without notice. What was asked, and paid yesterday, never guaranteed what would be asked, and paid tomorrow (open market capitalism at its best).
*Although current market levels for diamonds, gold and colored gems are again, steadily rising, they can neither justify nor support the conditions of the early 1980's. Thus, a thorough, well constructed, current replacement or update report may (in comparison) indicate a negative value path.
However, when the foregoing factors are viewed from a consumer perspective, we must ask: who wants to pay insurance premiums for ten thousand dollars coverage, on a piece of jewelry currently replaceable for five or six thousand dollars? And believe it, insurance companies do not wish to be in a position of overcharging for coverage of scheduled property.
Some things are certain: Markets are fluid, and imminently changeable; ever-subject to supply, demand and imperfect competition. Insurance companies are also sensitive to changes (generally for items over $10K) on an annual basis. An appraisal for any function and purpose, however accurate and well-executed, is but a "snap-shot" in time; and subject to review and revision by the risk-takers.
Hopefully I have provided some beneficial insight. All for now.
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