February 11, 2021

Why Are Diamonds Expensive

Read more about Diamonds

What makes a diamond so special and valuable? Is it true that they are actually worthless?

Diamonds are expensive because enough people are willing to pay a large amount of money for them.

Why? Marketing campaigns by De Beers depicted diamonds as a premium, rare product. Demand skyrocketed, and so did the prices.

Discover the surprising reasons that make diamonds so expensive, including which qualities drive up the price and the history of the infamous advertising campaigns.

Why Diamonds Are Expensive

Three major factors have contributed to making diamonds a premium product in the market today:

  1. False Scarcity
    Before the 20th century, diamonds were pretty rare. They were only found in small amounts in India and Brazil, explains diamond historian Edward Jay Epstein.

    Around 1870, that all changed. Huge diamond mines were found in South Africa, and the businessmen who operated the mines panicked. This new supply of diamonds would kill demand.

    To maintain the illusion of scarcity, the businessmen merged into one entity called De Beers Consolidated Mines Inc.

    They took full control of the diamond mines, the supply, and the prices.

    Within 10 years, De Beers had taken over 90% of the world diamond industry, creating a huge monopoly.

    The false-scarcity they created led people to believe that diamonds were rare. Thus, diamond prices skyrocketed.

  2. Demand Creation
    Once De Beers gained control over supply, they had to find a way to drive up demand.

    Their plan was to get people to see diamonds as a symbol of romance, power, and love - plus, a valuable investment.

    By doing this, people would consider diamonds to be a necessary part of relationships, marriage and "moving up" in the world. These were goals that most Americans had.

    In the years following, De Beers created multiple marketing campaigns with that in mind.

  3. Clever Marketing
    De Beers paired up with New York Ad agency N.W. Ayers to create the infamous diamond marketing campaigns we still know today.

    Magazine ads with Picasso and Dali made diamonds seem like works of art.

    Diamond mine tours for the British Royal Family solidified diamonds as a status symbol.

    Movies with Marilyn Monroe painted diamonds as glamourous and romantic.

    Each of these campaigns would secure diamonds as the symbol of love, power, and wealth. Eventually, De Beers came up with it's official motto: "A Diamond is Forever."

    Men and women wanted a piece of the romance and glamour that diamonds offered, and diamond sales went way up.

From the 20th century on, De Beers controls most of the diamond industry to keep demand up and supply "down". To this day, diamonds can be fairly pricey.

Other Reasons Why a Diamond Can Be Expensive…

Apart from clever marketing, there are certain qualities that can drive up the price of a diamond. For example…

  • A truly colorless diamond is much more valuable and rare than a diamond that has any color tint to it.

  • Diamonds without any blemishes or visible inclusions, even under a 10x magnification, are rated highest in the GIA Clarity Grading System, and are quite expensive.

  • Larger diamonds are rare and thus, more valuable.

  • Finally, skillfully cutting a diamond is difficult, which adds to the cost of a diamond.

Are diamonds a good investment?
Diamond prices typically increase 4% per year, but this doesn't mean the diamond will have good resale value.

The resale market for diamonds is weak. As soon as you buy a diamond, the value has already gone down, so you shouldn't count on diamonds as an investment.

What factors affect the diamond price?

The 4Cs are what determine the price of a diamond: Carat, Cut, Color, and Clarity.

Here's how each factor affects diamond price:

Among the 4Cs, carat has the biggest influence on the price of a diamond. Even though a 0.99 carat and 1.00 carat diamond look the same, the 1 carat diamond can cost much, much more.

The price also increases exponentially, which means a 2.00 ct diamond will be much more than double the price of a 1.00 ct diamond.

The next most important factor that determines the cost of a diamond is cut.

Cutting a diamond skillfully is difficult. Only expert diamond cutters can showcase the ideal proportion and symmetry of its facets. Plus, cut has everything to do with how brilliant a diamond appears.

Diamonds exist in many hues and it's very rare to find a naturally colorless diamond (which is why they're extremely expensive and valuable).

Even just a small color difference, which can only be distinguished by a seasoned gemologist, can lead to a 10% difference in cost.

The final "C" is clarity. This is a measurement of the flaws a diamond has.

"Blemishes" are exterior flaws like scratches and chips. "Inclusions" are interior flaws. The fewer flaws a diamond has, the higher the clarity grade, and thus, the more expensive it is.

Why are diamonds less expensive than gold?
Diamonds are less expensive than gold because the value of gold is predictable and stable. Since gold is the most popular precious metal that can't be synthesized in a lab, unlike diamonds, it has stood the test of time and established itself as a safe and worthwhile investment.

Bottom Line

Now that you know why diamonds are expensive and how the price is determined, you're better equipped to find the best diamond in your price range.

Apart from this, it's also crucial to talk with your loved one and understand their expectations and preferences. Remember, your partner may be wearing the ring, but this is ultimately a decision you make together. Best of luck!

Holly Zorbas is a assistant editor at CreditDonkey, a diamond jeweler comparison and reviews website. Write to Holly Zorbas at holly.zorbas@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

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