The information highway has spawned a new type of consumer: the informed consumer. I will bet every retailer reading this has had instances when a 20-something walks in looking for a diamond, fully armed with printouts, fact sheets, and prices.

Many years ago, Martin Rapaport warned the industry about the commoditization of diamonds. People stopped looking at stones and instead read certificates. There is even talk now of creating a type of hedge fund called a diamond derivative. Can you think of anything more volatile and subject to manipulation than diamonds?

De Beers is backing out of the diamond business. It’s cutting ties to sightholders of long standing. It can’t seem to make up its mind about who it is and who it wants to do business with. Meanwhile, Australia’s Argyle Mine is running out of production, Russia has declared it will no longer be tied to De Beers, Canada is running their own show, and Africa is in constant turmoil.

It was bad enough when Orange County dove into derivates based on AAA bonds. When interest rates went up, the bonds went down, and Orange County went bankrupt—and that was a relatively safe investment. Diamonds are not.

There was a time when natural diamond was an important industrial tool. Every nation needed a supply, sort of like the need for platinum, aside from jewelry. But laboratory-created diamonds have all but eliminated that industrial need, so what is the value of diamond based on? Today, it may be supply and demand. But that supply chain is becoming murky. Russia is cutting some of its production and so are De Beers and Canada. De Beers is opening retail stores. Where is the argument of supply and demand when the mining company that digs up rough at an average cost of $180/ct. cuts its own stones and puts them in their storefront window? If needed, the De Beers retail store can outcompete every level of the industry and still make money.

The bottom line: Watch out for long-term diamond values.