James Bond films have focused on them in “Diamonds Are Forever,” brilliant marketing has persuaded us that diamonds are the only real way to commemorate a wedding and that they are a girl’s best friend.
The general rule is that diamonds appreciate over time; however, it is mostly a simple answer to a complex question. The wholesale and retail value bear little resemblance to each other, and the return on a retail stone is very difficult to predict, particularly after the retailer costs.
In the last fifty years, the price of certain retail diamonds has shown an annualized growth of more than 10% per annum. However, it is not so simple because not all diamonds are equal, so it is impossible to standardize a price based purely on weight.
What Is The Historical Price Of Diamonds
Gold is valued by weight because Gold is Gold! One brick of Gold is identical to every other brick of Gold. However, valuing diamonds is much more subjective.
Each diamond is different, so it needs to be assessed individually, and part of the assessment is a subjective evaluation of the jewel.
The retail price of diamonds is difficult to track because, unlike Gold, which has a standard price per ounce, diamonds are dependent on many more factors.
For one diamond rates as 1.00 Carat EX EX EX, H&A, Super Ideal Cut, Flawless, Girdle thickness medium Fluorescence none, the retail price from 1960 to 2018 is listed below.
| Year | Price |
| 1960 | $2,700 |
| 1970 | $6,900 |
| 1980 | $10,500 |
| 1990 | $13,900 |
| 2000 | $15,100 |
| 2010 | $24,500 |
| 2013 | $28,400 |
| 2015 | $29,650 |
| 2016 | $30,925 |
When diamonds are purchased wholesale, no reference is made to the individual score of each diamond because they are sold as rough-cut stones. These are sold purely in weight.
Between 2008 and 2022, the wholesale price of one carat of rough-cut diamonds has only increased four percent.
There is a massive difference between the wholesale and retail prices of diamonds due to the significant number of factors affecting the final price.
The Factors That Affect The Price Of Diamonds
The price of diamonds is affected by several factors.
The Quality Of The Stone
The better the quality of the diamond, the higher the price it will fetch. Four criteria judge a diamond’s quality, called the four C’s.
- Cut
- Clarity
- Color
- Carat Weight
The Diamond’s Cut
The diamond’s cut is not a reference to its overall shape but rather the symmetry of the facets (sides), how the facets are proportioned, and how the diamond is polished.
It determines the optical properties of the diamond, and if the diamond is not well with well-proportioned facets, it will end up being dull and not very impressive.
The Diamond’s Clarity
The number of imperfections determines the diamond’s clarity. The imperfections are scored by the internal and external issues of the diamond.
- Internal blemishes called inclusions.
- Blemishes are external flaws, facets, polish lines, or burns.
These result in the diamond achieving a GIA score.
GIA (Gemological Institute Of America Inc.) is an organization that independently researches gems, conducts research, and standardizes diamond standards.
One of GIA’s main responsibilities is the grading of diamonds. The organization has ten campuses, nine grading labs, five locations where diamonds are collected, and four research locations.
GIA has developed a standardized grading system that assigns a normalized score for each diamond, known as the GIA grade.
| Grade | Description |
| Flawless (FL) | Under a magnification of ten, no flaws are present |
| Internally Flawless (IF) | There are no inclusions but have surface blemishes |
| Very, Very Slightly Included (VVS1 and VVS2) | Inclusions are slight and so are difficult to see under magnification |
| Very Slightly Included (VS1 and VS2) | Minor inclusions ranging from difficult to easy to see |
| Slightly Included (SI1 and SI2) | Included are noticeable to the grader |
| Included (I1, I2, and I3) | Inclusions are obvious and affect the brilliance |
The Diamonds Color
The color of a diamond is a contradiction because the better the color, the absence of color.
The higher the absence of color, the higher the perceived value of the diamond. The score which is assigned goes from D (colorless) to Z.
The color bands are:
- DEF – Colorless
- GHIJ – Near Colorless
- KLM – Faint Color
- NOPQR – Very Light Color
- S to Z – Light Color
The Diamonds Carat
The size of a diamond is called the carat weight and is the universal standard of a stone’s size.
Originating from the ancient metric of the carob seed, which was uniform in size and weight, diamonds were measured against these and assigned a value.
The modern carat is equivalent to 200mg.
The Price Of Diamonds Is Controlled
The price of diamonds is very finely controlled by DeBeers and other members of the worldwide “cartel.” DeBeers sells on the basis of “take it or leave it,” and they will not reduce the price based on what the market determines.
The wholesale price is generally fixed just below the level of demand, and small suppliers have very little influence on the actual price.
Even a major economic collapse would have little impact on pricing since the supply would be reduced to meet reduced demand.
The one change which is occurring is that laboratory-grown diamonds are making their presence felt. Essentially, it creates a secondary source that may ultimately impact the overall price.
The Retail Price Is Different To The Wholesale Price
It sounds like an obvious statement, but it plays a large part in controlling the secondhand pricing model.
Just like when a new car is driven out of the car showroom, it immediately devalues; when a diamond leaves the jeweler, it also devalues.
The reason for this is that the jeweler has substantial overheads, which automatically affect the price.
- The jeweler has the costs of running the shop to pay.
- The jeweler has insurance costs.
- There are security costs such as cameras, alarms, and safes.
- The jeweler incurs the cost of cutting and setting the stone, and when the diamond is eventually sold, in all likelihood, the setting will be discarded.
Diamonds Are Not Rare
Despite what the advertising says, there are only a few rare diamonds characterized by size, clarity, and color.
The rest of the diamonds are mined in huge diamond mines worldwide, and there is no supply shortage. Most diamond organizations have massive quantities of diamonds that are held back to ensure the price is not affected.
Geologists have learned how to survey and find diamond-bearing rock and mine it.
DeBeers has a monopoly on most diamond production, and most producers go along because they know prices will plummet if many new diamonds come onto the market. DeBeers controls the entire supply of new diamonds.
When a producer tries to buck the system, DeBeers can flood the market with similar diamonds to drive down prices for those precise category diamonds and marginalize that producer.
Diamonds May Last Forever, But Their Prices Don’t
In the 1940s, DeBeers developed a massive marketing campaign that centered around two principal messages.
- Diamonds last forever.
- Diamonds are a girl’s best friend.
These messages were very clever because they were designed to make a diamond appealing and suitable as a remembrance of a special event, such as marriage. Still, they also hinted that reselling the diamond was disloyal and would ruin the memory.
The fact that diamonds are perceived as lasting forever meant that keeping them in the family as an heirloom was a secure investment.
The reality is that DeBeers was trying to prevent the development of a large secondhand reseller industry which would have compromised the price of diamonds.
Someone trying to sell a secondhand diamond at a jewelry store will generally be disappointed with the price.
Diamonds don’t increase in value over the short term, which is disappointing to many investors looking to make a quick buck.
Conclusion
It is generally not recommended that you purchase diamonds as an investment because although they have multiplied their value multiple times over the last fifty years, it is almost impossible to predict what future values will be. The pressures on the future price are considerable.
If you take a very long-term view, there will probably be an appreciation over several decades. However, much better short-term investments will provide a more secure return.
