Tiffany Margins Benefit from Congresses Ban on Burnese Gemstones

Implications: Congressional action to ban the Import of Burmese gemstones could mean higher gross margins for Tiffany.  Here's why.

Analysis: Candidly, I am always skeptical when the Congress votes to ban, restrict, or limit the import, export, or sale of any product, especially on the grounds that it is for the good of all mankind.  That isn’t to say that there aren’t many worth causes that could use legislative support.  But realistically, there are almost always big financial winners anytime Congress legislates ether an increase or decrease in actual supply and demand of any product.  

Take the recent legislation halting the importation of Burmese rubies into the US.  Like almost every natural gemstone, fine rubies have significantly appreciated in value over the last 20 years.  Burmese rubies are no different.  In fact, it’s difficult to find high quality gemstones in the marketplace today.  That’s not because there are none, but for the most part very few are for sale.   Now there will be even less, so the value of the exiting stones will escalate even higher, encouraging smugglers to take even higher risks to transport Burmese stones to free ports of entry.   

For those stone merchants that currently own Burmese stones, their inventories may well have doubled in value.  For those who own jewelry set with the little red gems, their heirs will be happy to lean that mom’s 3 carat ruby ring is now worth more than the cost of an Ivy League education; a value that probably will not decrease even if some political and social stability is attained in the troubled regions.  

Likewise, retailers like Tiffany, Cartier, Harry Winston, and Garrard can not only describe their signature ruby rings, necklaces, scatter pins, bracelets, and tiaras as historical heirlooms worthy of even higher value, but also increase the prices of both their estate and modern styles pieces offered for sale in showrooms around the world.  

Congresses action is hardly a unique event, earlier it passed legislation regarding the import of “blood diamonds” that where being sold by rebels to fund a Civil War in Angola. One consequence of that legislation was the creation the Kimberly Process where by the diamond industry agreed to an administrative process to limit the trading in “conflict diamonds”  Hailed by activist’s groups as a measure to bring peace to the war torn regions of Africa, it remains to be seen whether Kimberly was instrumental in  reducing tensions in the area.   

However, what it did do was reduce the supply of cheap rough in the secondary markets which allowed both private and state controlled mine owners in Africa, Russia, Australia, and Canada, to either maintain or increase rough diamond prices.  It’s little wonder both sovereign governments and mine owners alike supported the Kimberly process.