Why are diamonds so expensive?

Thousands of years ago, these stones were found in the south of India. For hundreds of years, India was a leader in producing diamonds. Later on, diamonds were discovered in Brazil, South Africa, Venezuela, Russia, and Australia.

Now the world leader of diamond production is in South Africa. This is home to the diamond industry's leader, DeBeers. DeBeers has ownership of the top diamond mine in the world. They also own some of the largest diamond mines around. Because of this, they are able to have a big influence on the diamond industry.

Background

For more than a hundred years, one company dominated the diamond game. That company was De Beers. Going back to the late 1880s, it mined the majority of the world's rough diamonds—the stones that, once cut and polished, are set onto the rings and things you find in display cases at your local jewellery store. As new diamond discoveries were made over the decades, De Beers saw its share of production diminish. Still, it retained a hold on diamond distribution—the sale of rough diamonds. De Beers bought rough diamonds from other miners and sold them to cutters and polishers. By doing this, De Beers essentially controlled how many diamonds would be released into the market each year. This gave it a position of strength when negotiating prices with its clients.

Prior to De Beers, diamonds were a symbol of affluence, and they were coveted by royalty for their brilliant physical characteristics and because they were so rare. But as more and more diamonds made it to market in the first half of the 1900s, the perception of rarity was threatened. In response, De Beers sponsored an advertising campaign designed to tie diamonds to love and loyalty through the purchase of an engagement ring—the bigger the stone, the bigger the commitment. And because you cherish your diamond and hang onto it for life, there weren't diamonds for sale on secondary markets, which could have undermined their value. (This campaign produced one of the most successful slogans ever—“a diamond is forever.”) By the end of the last century, the diamond engagement ring was a custom that had spread across the globe. The diamond's value in the culture was cemented.

But at the turn of the millennium, new mines in Australia and Canada's Northwest Territories weren't part of De Beers's distribution scheme. At the same time, lawmakers in the U.S. and Europe were beginning to think De Beers owned too much of the diamond distribution pie. Soon, the company's sales model broke apart.

Are diamonds forever?

At the turn of the last century, diamonds were actually scarce when suddenly loads of them were discovered in South Africa. To make a very long (and sordid) story short, we owe a big round of applause to De Beers and their advertising agency's very talented (and female) copywriter for making diamonds THE only jewel to express your eternal love and devotion with.

Fun history fact: De Beers' advertising agency, N.W. Ayer wasn't a fan of copywriter Frances Gerety's 1947 tagline “A Diamond is Forever”, but tolerated it long enough for the line to prove itself in a way that no other tagline in history has done. At the time, diamonds were down in popularity thanks to that real bummer: The Great Depression.

In other words, De Beers not only manufactured the tradition of giving a diamond engagement ring as the thing to do, via successful advertising campaigns, but also the illusion of scarcity - all. At the same time, they held the keys to the diamond mines.

Diamonds aren't rare — so how are they priced?

Diamond mines can now be found in Botswana, Canada, and Russia, which means that the gemstones are not as rare as they once were (via mining). True Facet even says that the diamond is the most common precious stone out there compared to other gemstones like rubies, emeralds, and sapphires. As a result, rubies, emeralds, and sapphires are actually more expensive than diamonds are.

But there is still quality to consider, and that weighs heavily on the price of a diamond. To determine the diamond's value, the stones are ranked, valued and priced on a scale known as the “Four Cs” — or carat, clarity, colour, and cut. Along with shape and certification, these factors go together to determine just how much you could be looking to pay for a loose stone or a pre-set piece of jewellery and help explain why diamonds are so costly in the first place.

What makes a diamond pricey?

The price of a diamond can vary based on its size and quality, both of which can drive its price up. Carat determines the total weight of a diamond; cut influences the way the diamond sparkles; colour refers to how clear a diamond might be (the less colour, the higher the grade and as a result, the higher the cost); and clarity, or the imperfections that you might be able to see, either with the naked eye or through a microscope.

Other factors that might play into the cost of a diamond is the shape in which it is cut (which could also affect its quality), and whether the diamond has a certificate says it has been independently valued, assessed, and graded by experts certified by the Gemological Institute of America (GIA).

So as far as an experienced jeweller is concerned, a 10-carat colourless diamond that's cloudy may not be worth that much more than a smaller stone with perfect clarity and brilliance.

Fancy coloured diamonds are the most expensive

Another critical factor that can add zeros to a diamond's price tag is whether a stone is naturally coloured (also known as “fancy coloured”). Unlike white, colourless diamonds found everywhere, fancy coloured stones are rare. DMIA says fancy coloured diamonds make up less than 0.1 per cent of the total number of diamonds mined worldwide.

The rarity of diamonds that range in colour from yellow (most common) to red (most rare) almost guarantees that the gems are either priced well beyond the reach of most people on the lookout for a nice piece of jewellery or that the gems are sold even before they are processed and cut.

This explains why gem collectors are willing to pay millions of dollars for diamonds like The Winston Blue ($23.8 million) and The Pink Star ($71.2 million). By these pricing standards, an engagement ring that might cost between $10,000 to $15, 000 from Tiffany's might actually seem like a real bargain.

Which is why the price of diamonds is increasing.

It is true that fancy coloured diamonds (like yellow or rose pink diamonds) are in short supply. Some experts estimate that colourful diamonds will be depleted in a decade.

However, white diamond supply is not really at risk. Historically, diamonds were very hard to find. But more and more mines have opened up to reveal a greater global supply of diamonds.

Additionally, man-made diamonds are growing in popularity. Indistinguishable from traditionally mined diamonds, these lab-manufactured diamonds are less expensive and considered an environment-friendly alternative to mining.

For centuries, diamonds have been a sign of power, wealth and status. The stone was a rare find and therefore was worth more.

However, in the 1800s, a veritable diamond trove was unearthed in Kimberly, South Africa. This newfound mine had the potential to flood the market with diamonds and bring down the cost for the precious stone. To prevent too many diamonds from hitting the market, De Beers quickly intervened, brought up the mine and maintained tight control over the global diamond supply. De Beers released only enough diamonds to meet annual demand. This gave the illusion that diamonds were exceedingly rare. In turn, the seemingly-limited supply inflated the cost of diamonds.

Throughout the 19th century, De Beers effectively maintained a monopoly on the global diamond mines: the cartel would stockpile diamonds, limit supply, and drive up demand and costs.

De Beers also began an aggressive marketing campaign to promote diamond engagement rings. The brand pushed out the longstanding tradition of ruby and sapphire engagement rings and replaced it with an overwhelming demand for diamond rings. This fever-pitch demand, coupled with the De Beers-controlled limited release of diamonds, increased diamonds' overall cost.

But, before you admonish yourself for being duped by clever marketing propaganda, understand that diamonds have long been considered a valuable stone. Ancient Greeks revered the indestructible stone and believed it to have mystical powers. For centuries, diamonds have been worn by royalty and noblemen as a status symbol. And diamond engagement rings have been traced back to 1477 when the Austrian Archduke Maximilian proposed to Mary of Burgundy with a diamond ring.

So today's fervour for diamonds is not a new phenomenon by any means. Diamonds are undeniably a dazzling, brilliant and mesmerizing stone and worthy of awe.

Not Everyone Wants a Diamond Forever

Say what you will about Millennials, but when it comes down to it they don't buy into tradition for the sake of tradition -- and diamond engagement rings are no different.

Many Millennials aren't interested in getting hitched, and if you're not tying the knot anytime soon, there's no need for an engagement ring. Besides, with all that student debt they've racked up, living together sans ring until their loans are paid off in the year 2056 seems like a more practical idea.

When you consider financial, ethical, and personal choices not to wed, Millennials are helping to swing the diamond-buying tradition into a new direction.

Whether you're a staunch traditionalist who loves her diamonds (like me) or excited about other non-diamond (and truly rare) engagement ring choices, the value of a diamond should be determined by you and your partner -- not the diamond guys.

And since we're not the diamond guys, we can sleuth out the best deal on diamonds anywhere (online or off) if you do decide that a diamond is forever, after all.

Why are diamonds so expensive?

There's nothing more beautiful than a sparkling diamond, especially when it's used to create a breathtaking piece of jewellery. This beauty often comes at a steep price, though. Why are diamonds so expensive? There are several different factors that drive the price of diamonds up, including:

• Rarity
• Mining Difficulties
• Durability

Rarity

In general, diamonds are not incredibly rare. But, the high-quality diamonds that are used in the jewellery world are rare. It's estimated that only 30% of the diamonds that are mined around the world are gem-quality. The rarity of these diamonds makes them more valuable, which is why they are expensive.

Mining Difficulties

Diamonds naturally form in the high pressure, hot environment deep beneath the Earth's surface. Extracting these diamonds from the Earth is not easy.

Mining involves the use of heavy machinery, hydraulic shovels, trucks, and other expensive equipment that is difficult to operate. This equipment is used to transport ore to the surface, where the diamonds are finally extracted.

After a diamond is extracted, a diamond cutter must shape and polish it to ensure it is ready for sale. Mining, cutting, and polishing diamonds is a challenging, labour-intensive process. The complexity of this process undoubtedly increases the price of diamonds.

Durability

The diamond is ranked as a ten on the Mohs Hardness Scale, which is used to measure the strength and durability of a gemstone. This high score indicates that the diamond is one of the hardest minerals in the world. It is nearly impossible to scratch the surface of a diamond and quite difficult to break or crack it as well.

This incredible durability is one of the many characteristics that set a diamond apart from other gemstones. It's also one of the factors that increases a diamond's price. Diamonds will last much longer than other more delicate gemstones, so they are more valuable.

How Much Does A Diamond Cost?

It's true that diamonds are expensive, but the cost of a diamond can vary from stone-to-stone. Some of the factors that affect the cost of a diamond include:

• Cut: A diamond's cut refers to its symmetry, proportions, and facet arrangement. A diamond with a high-quality cut will have an intense sparkle.
• Colour: A colour grade is used to measure the lack of colour found in a white diamond. The most expensive diamonds are colourless, which means there are no hints of yellow-brown in the stone.
• Clarity: The term “clarity” refers to the presence of inclusions and blemishes. Flawless diamonds are incredibly rare and very valuable.
• Carat: The carat is a measure of a diamond's weight. Heavier diamonds are larger than lighter diamonds and thus more expensive.

Every diamond is unique. For example, the average cost of a one-carat diamond will fall between $2,700-$5,500. A one-carat diamond falls in this range and will depend mainly on its cut, colour, clarity, and carat.

Keep this in mind if you are shopping on a budget. For instance, if the colour is not very important to you, stay within your price range by choosing a diamond with a slightly lower colour grade.

The Most Expensive Diamonds in the World

The diamonds found in most jewellery stones can cost you hundreds or thousands of dollars, but there are also diamonds worth millions. Here's a look at some of the most expensive diamonds in the world:

• Cullinan I and Cullinan II: These two diamonds, which are 530.2 and 317.4 carats respectively, were cut from the same 3,106-carat diamond. The nine diamonds that were cut from this massive diamond are collectively worth billions of dollars.
• Centenary Diamond: This 599-carat flawless diamond was cut down to 273.85 carats shortly after being discovered. The exact value is unknown, but it has been insured for $100 million.
• Hope Diamond: The 45.52-carat Hope Diamond was gifted to the Smithsonian Museum by Harry Winston. Its estimated worth is $200 million.
• The Regent Diamond: This 140.64-carat cushion cut diamond is on display at the Louvre Museum in Paris, France. It is believed to be worth about $61 million.

These diamonds are unbelievably expensive, but fortunately, most diamonds will not set you back millions or billions of dollars.

Over the years the diamond has become better known as the ultimate gift of love. Since its discovery, diamonds have always been coupled with the thoughts of romance and legend. The word diamond originates from a Greek word which means unconquerable. This suggests the eternal nature of love, further going along with the Greek philosophy that the diamond's fiery brilliance reflects love's undying flame. The reason a woman wears a diamond ring on her third finger of her left-hand goes back to the early Egyptian's belief that the vena amoris, which when literally translated means vein of love, ran straight from the heart to the top of the third finger on the left hand.

Today, a diamond's value is typically measured by testing the 4 C's: Colour, Clarity, Cut, and Carat.