Diamond Prices – Supply & Demand
Diamonds were first discovered centuries ago in India but since that time they have been mined in South Africa, Brazil, Australia, Russia, and Canada. Because each diamond is unique we have attempted to categorize and assign value to common characteristics. However, the reason why diamonds cannot be clearly defined as a ‘commodity’ like gold or platinum is due to the fact that natural diamonds are not uniform across all producers (for example grains, beef, or natural gas which have a standardized benchmark). Diamonds vary widely in carat weight, color, clarity, and fluorescence and are further manipulated by humans in terms of final polished carat weight, shape, and cut proportions.
However, despite these variances there are factors that do hold considerable weight in terms of value and pricing. Rarity by way of unusually large diamonds, unusually high color grades, unusually high clarity grades, and unusually precise cut precision all boost a natural diamond’s perceived value and therefore pricing index. Over the years the industry has attempted to create a comprehensive pricing system to white cut and polished diamonds that aims for a consistent and reliable pricing index used in accordance with economical supply and demand.
One of the first pioneers who attempted to establish a workable system of diamond characteristics and pricing is Martin R. Rapaport.
The Rapaport Group was established in 1976 by Martin Rapaport and has over 11,000 clients in 75 different countries. The Group provides industry information pertaining to published materials, electronic information services, diamond grading and certification, global trading and auction services, consolidated international shipping, international sourcing, quality-control and compliance services; and localized financial, research and marketing services.
However the Group is best known for their electronic trading network; RapNet which stands as the world’s largest diamond trading network for professionals within the diamond industry. Diamond professionals in the diamond trade use RapNet’s global network of diamond buyers and sellers for direct and up-to-date knowledge on current diamond prices and availability. The success of this Group is largely a result of their core mission in continuing to develop a free, fair, efficient, competitive, and profitable diamond and jewelry markets. (quick note – I had the pleasure of meeting Martin Rapaport in London when he gave the keynote to Gem-A’s graduates.)
Most recently Martin has publicly declared the unethical diamond grading practices by popular gem labs such as EGL International. If you are signed up to my newsletter, you’ll know that this is one of the first things that I address and wish to educate diamond consumers on.
In 2004, International Diamond Exchange, aka IDEX established their own price list. The IDEX Diamond Price Report is published weekly and is an analysis of asking prices for higher-quality diamonds in the international wholesale markets. Their report is based on price changes as reflected by the global trade on their platform which is the first and oldest index based on actual listing data (this provides reliable, transparent, and unbiased pricing information).
How/Why Diamonds Are Valued
Despite the industry attempting to create several platforms for diamond prices, the challenge in calling a diamond a commodity is difficult as there is no ‘spot price’ (current price at which a particular security can be bought or sold at a specified time and place). If we are to speak purely on economics, the value of anything is based purely on how much demand there is for that particular material. Thus, it’s logical to assume that if diamonds were to fall out of favor and were no longer the preferred gem material for jewelry, then they would be effectively worthless as would anything else if we suddenly didn’t have an interest or desire for it.
Diamonds As A Gem Material Are Valued For Their:
- Beauty – High adamantine luster which is extremely bright and reflective; high dispersion also known as ‘fire’
- Durability – hardest natural material (resists abrasion); Toughness (resist the development of fracture/cleavage), Stability (resist physical/chemical alteration due to light, heat or chemical attack)
- Rarity – Approx 250 tons of rough ore mined yields a single carat of gem grade diamond (.2 grams); approximately 80% of mined diamonds are industrial grade diamonds and not suitable for jewelry.
- Acceptability – DeBeer’s 20th century marketing campaign has solidified the first 3 values as highly desirable and a cultural expectation
Ultimately, all things are valued based on need or desirability. The supply of gem quality diamonds coupled with their high demand has made the diamond a desirable material for adornment and decoration and as a symbol of prestige, wealth, and class. – Liz Hancock
Investing In Diamonds
As mentioned above, diamonds that are rare in carat weight, color, clarity, and cut grade all help boost the inherent value and investment potential. However a lesser known option are fancy colored diamonds. As described by Leibish&Co, “During the last 15-20 years, fancy colored diamonds have shown an accelerated increase in valuation both per carat price and total overall price paid. This is due to increase in awareness by investors of the rarity of such a natural resource, and its superiority in wealth concentration.”
Thus, an individual looking to invest in a fancy colored diamond could choose to:
1. Invest in shares of the major mining companies
2. Buy individual fancy colored diamonds
3. Invest in a diamond fund
For more information on investing in fancy colored diamonds, I recommend Leibish&Co’s Diamond Investment E-book.
White diamonds on the other hand have a very low resale value and in most circumstances a diamond ring is worth the wholesale price of your diamond plus whatever precious metal your diamond is set in. If you’d like more information on how to sell your white diamond jewelry, please read ‘Do You Need To Sell Your Diamond Jewelry?‘
At the end of the day, diamonds are desired for the way they make the individual ‘feel’. It is an emotional purchase like so many other things in life; fine wine, luxury vacations, exotic cars, one-of-a-kind perfumes, couture fashion, hand-made shoes, rare watches, distinct property, etc. For those of us that get an added pleasure in knowing that our possession is rare, expensive, or unique that is enough ‘value’ for us. In many instances a gift from a loved one is priceless. Therefore, purchasing a diamond should incorporate both elements of desire and rationality for personal satisfaction.
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