Why Are Diamonds so Expensive?
When Valentine’s Day rolls around, there’s always talk of how incongruous it seems that a holiday about the heart depends so much on the wallet. Every year, we have to prove our love by spending money on gifts that often are not even appreciated or wear out before we even get a chance to enjoy them. Shouldn’t love be eternal?
Technically, diamonds have been around for as long as the earth, so they may literally be eternal, but the idea that they should be used as engagement rings is a relatively new concept. It’s probably no coincidence that the concept arose at the time the DeBeers company took over the mining of 90% of the diamonds in the world. By 1938, “Diamonds Forever,” became a household phrase, and if your engagement and marriage didn’t include the exchange of a diamond, it might as well not have been consecrated. However, how much solid ground did this campaign depend on?
This article will discuss:
- Misconceptions About Diamonds
- Rarity of Diamonds
- Diamonds as Investments
- Supply and Demand
- Most Expensive Diamonds Ever
- Alternatives to Natural Diamonds
Misconceptions About Diamonds
Most of us buy diamonds because we buy into a lot of myths about diamonds. One main misconception we have is that diamonds are rare and their scarcity is responsible for the high prices. While it’s true that diamonds can sell for about $7,000 per carat on the market, they actually make up about 90% of the gemstone industry, making them more abundant than emeralds, sapphires, or rubies. On a closer reflection, it seems like the idea that they are rare may have been a marketing ploy.
Another myth we often hear about diamonds is that they are hard to access–also untrue. Nearly 6 billion carats have been mined throughout history according to the GIA, and these days we can even make diamonds in labs. Not only that, but new technologies are constantly being developed to make the mining of diamonds more efficient, including aircraft diamond mining.
Others site inflation in price and appreciation in value as leading to the stunningly high price tags and diamonds. However, the price of diamonds has actually depreciated in the last five years and continues to do so. So why all the hype about diamonds?
Rarity of Diamonds
According to, “Why Diamonds are so Expensive,” (Kiernan, WalletHub, 2017), diamonds are not as rare as most people believe them to be. The fact is, that diamonds once were rare, which is no doubt a large part of where the belief stems from. However, it was not until a huge supply of diamonds was found in South Africa in the mid-1800’s that many of the myths about diamonds began to emerge. In the 1900’s the DeBeers company took control over about 90% of the diamond supply, and this, in turn, enabled them to take control over a lot of the public perception about the diamond, including the price point.
The fact that DeBeers practically had a monopoly over the diamond market gave them free reign to inflate prices as they saw fit. But, the company did not rest on its laurels. In 1938, DeBeers launched its, “Diamonds are Forever,” campaign in order to establish the diamond as a symbol of betrothal, or intent to marry. It seems to have caught on. Keep in mind, though, that before the diamond, lead, silver, and gold were all acceptable marriage tokens, so if you really want to keep it real, skip the clever marketing.
Accessibility of Diamonds
Not only is the perception that diamonds are found rarely in nature responsible for the justification of their high prices, but there is also a lot of misleading information about the sources of the diamonds themselves.
The fact is that there are over 20 major diamond mines in operation and they produce about 120 million carats per year. There is actually a surplus of diamonds on the market. (Bain and Company).
True, it may mean unearthing over 8 million tons of rock to get to them, but once collected, that can amount to over 11 million carats of rough diamond that sells for $134 carats on the market (WalletHub).
Add to that most diamond mines are located in a close geographic proximity to one another, (only 5 companies control the vast majority of the world’s supply) and diamonds don’t see that inaccessible at all.
Diamonds as Investments
You may have heard of the concept of, “the diamond as an investment piece.” The idea is that a diamond will always increase in value, so you can’t go wrong in buying one. The truth is that diamonds are no sure investment, and you may even end up losing money on them.
Take for instance a consumer that tries to sell his or her diamond to retail store. How much of a profit do you think they’ll stand to make?
The truth is that even though the markup price of a diamond can be anywhere between 100% and 200%, most jewelers won’t buy them back from customers. On the other hand, when retailers get their diamonds from wholesalers, they don’t have to pay for them until the product is sold. This decreases the risk of losing money on the return and a consumers chance of making a return of his or her investment.
If he offers the consumer a low price, it will undermine the idea of the diamond as an investment piece and he runs the risk of insulting the consumer by offering a skimpy deal. On the other hand, If he offers a high price, he needs to be prepared to make good on it. Considering that a ring that might cost $2,000 at retail value could be sold back to a wholesaler for a maximum of about $600, the diamond is not much of an investment at all. (smartasset.com, 2018.)
On top of that, there is no guarantee that diamonds will appreciate in value. The expression, “Diamonds are Forever” can be interpreted in one of two ways. It can refer to the diamond’s status as the hardest mineral on earth, or as a metaphor for eternal love. However, that doesn’t necessarily apply to their monetary value. Although it is known for its stability as a stone, the diamond’s price has been rather volatile over the years.
That’s not to say that diamonds are destined to depreciate in price. So why does Warren Buffet greatest investment influence advise against buying diamonds as investments?
According to Buffet mentor, Benjamin Graham, a good investment guarantees a, “safety of principal and satisfactory return.” (Graham, The Intelligent Investor) With the fluctuation in the diamond value, there is no such guarantee. Retailers are not likely to provide the, “satisfactory return,” and when you consider the appreciation value of stocks, (SP 500 value appreciated 2,217% since 1978, diamonds only 86% (Web Wallet. Com) diamonds are sort of small fish in a big sea.
Supply and Demand
While there is so much talk of the rarity of the diamond, the truth is, historically, the supply of the diamond actually almost always exceeds demand.
Diamond production’s roots can be traced to South Africa. At the beginning of the 19th century, the mines there were responsible for 97% of the world’s production of diamonds. Since then, mining operations have expanded. As a result, more diamonds have been mined in the last 21 years than in all of history leading to 1993. As of now, diamonds are being produced in over 25 countries, with Africa still in the lead.
With this large surplus supply of polished diamonds, there is an excessive supply of polished diamonds. As a result, the prices of diamonds have been falling steadily in recent years.
According to Debain and Co, the polished diamond was one of the worst commodities in 2017. Diamond prices are predicted to drop as much as 10 percent this year as it loses appeal with younger generations and faces challenges from synthetic alternatives
Ironically, it seems that much of the success of the DeBeers campaign has finally come to bite the diamond industry in the back. Millennials are no longer accepting the idea of diamonds as the definitive symbol of luxury and eternal love and diamond mining has also been connected with unethical practices, such as the blood diamond industry.
Additionally, diamonds are not a sustainable resource and the possibility of running out of them sometime in the future is likely. Those who want to make more ecological and ethically responsible choices are choosing less of the diamond when it comes to engagement rings and jewelry pieces. Put this all together, and the price of diamonds is steadily decreasing.
Most Expensive Diamonds Ever
While diamonds may not be the best investment for the casual consumer, there are a few rocks that actually may stand to increase your wealth quite a lot, that is if you can afford them in the first place. Here are some of the most stunning and expensive diamonds of all time.
If you’re a California native, the 101 is the highway to Hollywood, but if you’re a diamond collector, it’s the 101. 73-carat weight colorless pear-shaped diamond that sold at Christie’s for $26.7 million dollars in 2013. That sounds like an investment that’s worth the “weight.”
2. The Perfect Pink Diamond
The name of this diamond alone is enough to win it the place as a, “girl’s best friend.” This 14.23-carat beauty sold for a cool $23.8 million at Christie’s. In 2010, it was auctioned at Christie’s Hong Kong for 23.2 million, setting a record for the most expensive diamond ever sold in Asia.
The rose and white gold 18K ring are set with smaller colorless emeralds to enhance the ring’s sparkle.
3. The Orange
They say when you’re known by one name alone, you truly have made it. If that’s true, the Orange certainly qualifies. The 14.82-carat beauty is the largest orange diamond ever to be sold at auction. It made its splash when it sold for a cool 35.54 million in 2013, making it the highest price paid for a colored diamond.
4. The Largest Diamond Ever
Sure, we’ve all done the expression, “size matters,” into the ground, but with this huge sparkler, the phrase takes on a new meaning. At a whopping 118.28 carats, this might not make the greatest engagement ring, but it certainly a conversation piece. It holds the record for being the largest and most expensive diamond on auction.
5. The Oppenheimer Diamond
“Something old, something new, something borrowed, something blue.” If you’re lucky enough to have something like The Oppenheimer Diamond as the something blue at your wedding, you are blessed indeed. The blue 14.62 carats Oppenheimer Diamond sold for 57.5 million in Geneva on May 8, 2016. It was named after former DeBeers chairman Philip Oppenheimer who sold it for well above its asking price of 35-45 million, which goes to show, that sometimes diamonds can be sound investments.
Alternative to Natural Diamonds
- Choose Another Stone
So now that we’ve blown the lid on the diamond myths, what can we do? Mark Zuckerberg seems to have come up with a few good ideas in his life, why not follow his lead on this as well?
When it came to the, “I Do’s,” for Mark and his now-wife, Priscilla Chan, he opted for a ruby. Why not opt for an alternative stone yourself? Rubies make beautiful engagement rings, and while emeralds and sapphires are actually rarer than diamonds, they are still much cheaper. The average sapphire or ruby will net about $75 to $2,000 per carat. The average emerald will cost $30 to $525. In addition to saving money, alternative stones reflect a more original and modern perspective.
2. Hold Off for A While
If you don’t want to settle for another stone, you can hold off for a while. Since the diamond market these days is controlled by a handful of companies, the retail market is segmented. Take advantage of the competition to shop around for a while. If time is not of the essence, a little patience can pay off big time.
3. Build on your investment
You may not have enough money for the, “Largest Diamond Ever,” yet, but you can always start by building on something small. The average one-carat diamond costs about $11,000, the average engagement ring costs $4,000. That means that the diamonds in most engagement rings are about 0.36 carats. At that rate, you may be better off starting small. Once you build the foundation, financially and in terms of your ring, you can add stones over time to your nest egg.
4. Lab Created Stones
While all these alternatives have their winning points, our favorite is the lab created diamond.
With all the myths about natural diamonds exposed, the popularity of the lab created diamond seems more and more like the go-to solution.
Why? Because the lab created diamond combines the old with the new. If you’re having trouble breaking with the idea that, “diamonds are forever,” with the lab created diamond you don’t have to. Lab created diamonds are real diamonds; they are just made in a laboratory. With a lab-created diamond, you don’t have to settle for sapphires, rubies, or emeralds if only the diamond will do.
The lab created diamond also solves ecological and ethical problems. There is no worry about sustainability with lab created diamonds, nor are there concerns about leaving a footprint on the earth from mining.
Lastly, you don’t have to worry about building on a small stone or shopping around with a lab created diamond. Synthetic diamonds retail for less than 20% to 30% of what natural diamonds go for and can be up to 150% cheaper, so you can make a good financial choice quickly and without the worry of price depreciation or comparative shopping.
So, what do you think? Did we bust your myth or burst your bubble? Now that you know the psychology behind the diamond business, would you consider retaliating with a lab created diamond?