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Nanotech Is a Girl's Best Friend

For thousands of years, pearls were counted among the world's most valued possessions. At one time, they were even referred to as the "queen of gems." What made them so valuable, in addition to their luster and beauty, was their relative rarity.

First, the cultured pearl ...
That changed at the beginning of the 20th century, when a couple of gentlemen in Japan discovered that pearls could essentially be grown on demand by introducing a core into pearl oysters. The pearl grew around the core and gave rise to what we now know as the "cultured" pearl. Virtually overnight, pearls were no longer rare, and the industry was forever changed.

Now, thanks to nanotechnology, it is entirely possible that even diamonds might lose their elite image in the next few years, and the lucrative industry could be brought to its knees.

... Next, the cultured diamond
That's because a couple of small, privately owned nanotechnology companies -- Apollo Diamond and Gemesis -- are now employing two different processes for manufacturing "cultured" diamonds.

To the extent that these companies are successful -- and each is already selling some of its cultured diamonds to jewelry stores around the country -- they could cause big problems for the likes of DeBeers, Aber Diamond, and other diamond companies and might also wreak serious havoc on the profits of companies such as Zale (NYSE: ZLC  ) and Signet (NYSE: SIG  ) , which rely on diamonds' margins for a healthy percentage of their annual profits.

Gemesis employs a process similar to the one General Electric (NYSE: GE  ) developed years ago, by using an extraordinary amount of pressure to fashion carbon atoms into high-quality diamonds. Apollo, meanwhile, uses a process comparable to the creation of a cultured pearl. It "seeds" a small diamond chunk into a machine and then, using high pressure and various gases, deposits carbon atoms around the seed to grow the diamond, molecule by molecule.

Both, though, have the advantage of doing in a couple of days what it takes Mother Nature millions of year to do -- produce a high-quality gem.

Despite the claims from DeBeers and others claims that these are not "real" diamonds, they are molecularly identical to the ones harvested from the earth. In fact, many diamond experts say the manufactured diamonds are actually better, because they don't have any molecular imperfections.

In addition, these diamonds -- which for now must be termed "cultured diamonds" because of political pressure from the diamond-industry trade association -- are also less expensive. According to a recent Wall Street Journal article, Apollo's diamonds are currently priced 15% lower than mined diamonds but can be manufactured for far less than that price suggests.

Apollo's and Gemesis' stones also have the advantage of not being mined by human labor. At the Academy Awards ceremony this March, actor Terrance Howard intends to wear some of Apollo's diamonds to highlight the ethical advantages its diamonds have over their manually mined cousins -- a timely move in light of the new movie Blood Diamond, which draws attention to the controversy that sometimes accompanies the mining of "natural" diamonds.

DeBeers and others in the diamond industry are countering these advantages with a new marketing campaign -- one that stresses the idea that true love is best demonstrated with a diamond "made over millions of years." Tiffany (NYSE: TIF  ) has latched onto this campaign and is refusing to sell either Apollo's or Gemesis' diamonds, on the grounds that they aren't "real" diamonds.

Perhaps this strategy will work in the short term, but I doubt that it will survive for long.

Here's why. In the Journal article I referred to earlier, a diamond-industry spokesperson said that part of the allure of mined diamonds is that "approximately 250 tons of ore must be mined and processed in order to produce a single, one-carat, polished, gem-quality diamond."

I don't know about you, but having to tear up a sizeable chunk of earth doesn't increase the attractiveness of a mined diamond. To me, it merely highlights the unsustainable and environmentally unfriendly manner in which mined diamonds are harvested today.

But the outcome will be the same
My guess is that a century ago, many people in the "natural" pearl industry claimed that "cultured" pearls weren't as good. They were probably even successful for a while in persuading the public to their side. Eventually, though, the quality, look, and price won over consumers in the commercial marketplace.

I believe the same thing will happen with "cultured" diamonds. When it does, that will be bad news for DeBeers and other diamond companies and good news for Apollo and Gemesis.

Whether diamonds will still remain a girl's best friend, especially when so many are on the market at a reasonable price ... well, that remains to be seen.

Interested in other nanotech Foolishness? Check out these articles:

Got an opinion on diamond stocks, or nanotech stocks, or any other type of stock, that you're itching to share? Head on over to Motley Fool CAPS, where you can sound off on whether you think a stock is a real gem or just plain fool's gold. And it doesn't cost you a penny to participate.

Fool contributor Jack Uldrich is the author of two books on nanotechnology, including Investing in Nanotechnology: Think Small, Win Big. He does not own stock in any of the companies mentioned in this article. The Fool has a strict disclosure policy.

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