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.

Advertisements run by diamond sellers have depicted diamonds as a premium product, making some people willing to pay tens of thousands of dollars for one.

Discover the surprising reasons that make diamonds so expensive below, including which qualities drive up price and the marketing campaigns that shaped the demand of this precious gem.

Why Diamonds Are Expensive

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

  1. False Scarcity
    Even though large diamond mines were found in South Africa in 1870, the businessmen who operated the mines made it appear as if diamonds were in short supply, or scarce.

    This scarcity eventually led people to believe that diamonds were rare and thus, diamond prices skyrocketed.

    The businessmen also created a diamond cartel named De Beers Consolidated Mines Inc., which took full control of diamond supply and prices.

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

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

    In the years following, they created multiple marketing campaigns to convince people they needed to buy a diamond.

  3. Clever Marketing
    Ad agency N.W. Ayers paired up with De Beers to create marketing campaigns that would drive demand.

    The campaigns suggested that buying a diamond was the only way a man could show his love for a woman. Moreover, the size of the diamond determined how strong their love was.

    The timeless "Diamonds Are Forever" slogan came from one of De Beer's famous ads.

Other Reasons Why a Diamond Can Be Expensive…
Apart from the 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.

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.

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:

Carat
Among the 4Cs, carat has the biggest influence on the price of a diamond. For example, even though a 0.99 carat and 1.00 carat diamond may appear 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.

However, carat size doesn't necessarily reflect the physical size of the diamond. In fact, two diamonds of the same carat weight can be priced a lot differently due to the other factors like cut, clarity, and color.

Average Cost of a 0.5, 1, and 2-carat Diamond
  • A 0.5-carat diamond costs $1,500-$2,500 on average
  • A 1-carat diamond costs $1,800-$12,000 on average
  • A 2-carat diamond costs $5,000-$60,000 on average

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

Skillfully cutting a diamond to showcase ideal proportion and symmetry of its facets is extremely difficult. Not only that, cut has everything to do with how brilliant a diamond appears.

In a well-cut diamond, the light will enter from the top, bounce around, and exit again through the top. This returns almost all light into the viewer's eyes.

On the other hand, a poorly cut diamond will "leak" light and seem dull.

Color
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).

The GIA grading system is used to rank the diamonds based on their color on a scale D (Colorless) to Z (Yellowish), with the diamonds getting cheaper as we move from D towards Z.

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

Clarity
The final "C" is clarity, which is easily the most misunderstood factor.

Diamond clarity is a measurement of the flaws within a diamond. Blemishes are exterior flaws like scratches and chips, whereas inclusions are interior flaws.

The fewer flaws a diamond has, the higher the clarity grade, and thus, the more expensive a diamond is.

Diamonds with a GIA clarity grade of FL (Flawless) are virtually flawless and only account for about 2% of all diamonds. On the other end, you have I1, I2, and I3 (Included) diamonds which have visible inclusion.

We recommend not going for either of these extremes since FL diamonds are needlessly expensive, whereas I1-I3 diamonds don't have the desired quality.

Instead, find a diamond somewhere in between these two extremes.

Are diamonds a good investment?
Diamond prices typically increase 4% per year, on average. However, just because a diamond's retail price increases over time doesn't mean that the diamond will have good resale value.

In fact, 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.

Money-saving Tips for Diamonds

The best way to save money on a diamond is to do your research before buying.

If you know all the factors that go into pricing a diamond, it will be much harder for a retailer to trick you into buying a diamond that's well beyond your price range.

Here are some other ways to save on the price of a diamond:

  1. Avoid buying during the holiday season. This is when the number of proposals is at its highest, and many retailers increase prices to take advantage of that fact.

    Buy outside of that time frame and you'll save a good chunk of change.

  2. Pick your diamonds strategically. We suggest not compromising on the cut of the diamond since it is has a huge influence on the diamond's brilliance.

    Compromises can be made in clarity, color, and even carat weight, but never on the cut.

    Additionally, there's no need to spend extra on a colorless diamond when a near-colorless diamond would do you equally well.

    As for the clarity, Very Slightly Included (VS) or even Slightly Included (SI) diamonds are good enough since their flaws aren't visible to the naked eye.

    For the size, try to go for weights just under the standard 0.5 or 1.00 carat since non-exact weights tend to be cheaper.

  3. Buying a diamond online is usually cheaper than buying in-store.

    Plus, the price won't include markups like the salary of the salesperson, so you can get quite a good bargain.

    Buying online also gives you access to a larger variety of well-cut diamonds and this can help you obtain the right diamond for your needs.

  4. Last but not the least, have a discussion with your loved one. They might be completely fine with, or even prefer, a diamond alternative or other stone for their ring. Being on the same page is essential!

Bottom Line

Now that you know how the price of a diamond is determined and which factors are most important, 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!

Write to Holly Z at holly.zorbas@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts. And remember that you can listen to CreditDonkey Radio any time.

Read Next:

Diamond Prices: What You Need to Know

Diamond Prices

Lab Created Diamonds: Do They Really Save Money?

Lab Created Diamonds vs Real

How Much to Really Spend on an Engagement Ring

How Much to Spend on Engagement Ring


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