By Donna Baker

GIA President Donna Baker delivered the keynote address during the AGS Conclave at the Robert M. Shipley luncheon. Photo by Robert Weldon

Because the theme of this year's Conclave was "Facets of the Future," I wanted to focus my talk on the current state of our industry and GIA's plans for the future. I am a firm believer that in order to know where one is headed, one not only has to know their past, but have a good grip on what's going on all around them in the present.

One of the most obvious realities of our business right now is how much more susceptible we are to global economics and the blowing winds of overseas market forces. Changes in economic strength or consumer demand on one side of the globe will create waves that no longer dissipate by the time they reach another shore. There may be a delayed effect, but more often than not, there is a direct hit.

We've witnessed that with painful clarity recently as the U.S. housing and credit markets, along with rising energy prices and significant currency shifts, roiled investors on Wall Street and consumers on Main Street. Gold, for example, has been selling for a record $920-plus per ounce as investors around the world look for more stable investments.

Diamonds, too, are soaring in price. Truly rare and beautiful pink and blue diamonds have climbed to more than a million U.S. dollars per carat. Larger five-plus carat colorless diamonds have posted double-digit gains, and that, in turn, has started to attract speculators who can create instability. Prices for more "ordinary" goods, however, have held firm, despite the softening of the U.S. economy.

Analysts we have spoken to attribute the drive-up in diamond prices to any or all of the following:

There's a perceived shortage of rough diamonds, and it's growing ever more acute. Many analysts believe that there may be a shortage of rough within the next 5 or 10 years. We believe, however, that shortages – with the exception of larger goods over 5 carats – would stem from manufacturers locked in an intense competition for supplies, not retailers or diamond dealers vying for polished goods to sell.

In fact, supplies of most polished goods are not stretched by any means, with more than enough inventory to meet public demand. Industry bankers we've spoken with maintain that there's about one-and-a-half billion dollars or more in polished diamonds sitting in safes and awaiting new buyers.

Growing consumer demand from China and India. Demand is indeed booming in China and India. Everyone knows that in just the last few years we have seen the diamond and gem business go global like never before, and China and India are the hotspots as demand for diamonds grow by 14-20 percent annually there.

But to keep things in perspective, despite those percentage gains, the U.S. still accounts for 46 percent of world diamond jewelry sales, compared to a much lesser percentage for China, India and the Middle East combined.

The weak U.S. dollar. The erosion of the American dollar against the Euro and other currencies, such as the Israeli sheckel, the Indian rupee, and the Australian dollar, meant that prices for most gemstones at the Tucson shows earlier this year were higher than ever – as much as 40 percent above last year's Tucson events, based on comparable quality and size.

In our final analysis of the Tucson gem shows, however, we see more of the proverbial glass being half-full than half-empty. Overall traffic was down – but actual business was much better than expected. In general, the high-ticket exhibitors fared the best because retailers who serve that clientele suffered the least from consumer reticence.

Create a Path to Prosperity
The larger question for all of us is: How do we sift through all this ever-changing information and devise a sound business strategy that will smooth out the ups and downs of the market and put us on a path to sustained prosperity?

The first step is to confront the reality of change, and that's why GIA, just like many others within our industry, has been studying every aspect of the external environment and our internal operations to see how we can better serve our constituents and do so more efficiently.

Externally, we've analyzed the local, regional, national and global trends that affect us, such as diamond prices, as noted. And internally, we are setting appropriate benchmarks, and analyzing financials (sliced and diced in many ways), operations, people and strategy.

We have also sought outsiders' perspectives for reality checks and to get candid comments from customers, lost customers, other constituents and employees. We've asked for an outsider's perspective on how we sorted the analysis of our internal operations to help make sure we are looking at the right things and are confronting reality.

The result of all of this analysis has lead us to streamline our business processes, extend our services overseas with new laboratories, add new grading services and reduce turnaround times.

In looking ahead, though, I believe the one area that will play as important a role as it has in the past is education. We must never stop learning about our industry - it is the only way forward. I am a firm believer that making the right investments in our educational infrastructure to meet the needs of all those we serve will only pay dividends for our industry as we ensure the highest level of professionalism for the next generation and the ones after that.

GIA is doing so by enhancing our popular Distance Education courses by making them fully accessible online. Our educational programs will be tailored for both individual students and professional retailers, who have very specific in-house needs when it comes to running a successful business.

As a community, we must all also embrace professionalism and integrity at an even higher level than we have in the past. Such phrases as "responsible business practices," "fair trade," "green gold" or "ethical jewelry" are increasingly part of our vocabulary, and are guides for how we should conduct ourselves within the jewelry business framework.

The forces of globalization and competition, which the jewelry industry faces more than ever today, requires that we truly come to grips with an ethical product supply chain so the public's trust of our industry remains secure.

I wish you much success as you address these and other pertinent issues in your business today and in the future.