Everybody, at one point or another, wondered why diamonds are worth so much? What is it about them that makes people throw money around in such amounts?
After all, a little research will tell you that diamonds are basically just plain old shiny rocks – so what’s the deal? Well, it’s complicated. The price of diamonds depends on a lot of factors, some natural, some man-made. But don’t worry, we’ll explain how it all works.
No matter if you’re planning on getting your significant other a nice diamond ring or necklace, or if you’re planning on getting into the diamonds trade – we got you covered. You really don’t have to be an expert to figure this stuff out!
If you’re the one who’s buying, you surely want to know – why the heck are they so expensive? So how about we shine a light on this glamorous and mysterious subject – who controls the price of diamonds?
Who Controls The Price Of Diamonds?
Diamonds were not always in every expensive accessory that you see on royals and rich folks. Far from it, actually. If you go back in time, you would have had a difficult time finding young men buying a diamond ring for their potential fiances. They were sometimes handed down from generation to generation within royal families, and that was pretty much it.
Not that they were rare or even expensive to make, they just weren’t popular! So what happened?
Well, the De Beers Corporation happened! Cecil Rhodes founded the company back in 1888, and for a long time, it was considered that they had a worldwide monopoly on their hands.
Since then, things have changed, but the De Beers group still controls about 29% of the world’s rough diamond trade and production! That seems like a lot, but at one point, they controlled up to 90%!
So why are we mentioning them? Do they still have an important role in the whole operation? Well, they kind of do, yes. See, diamonds hold such an immense value because of a marketing campaign that this corporation ran throughout the 20th century.
Remember how we said that diamonds really weren’t a thing before the 1800s? Well, this marketing campaign got the whole world to start buying diamond engagement rings, necklaces, and earrings. Heck, they managed to get the richest people in the world to spend all they had just to have beautiful diamonds on display in their house!
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Are Diamonds Really That Rare?
Alright, let’s take a step back. What is it about diamonds that makes them so valuable? Are they a rarity in the world? Are they hard to find or make? Well, there are a couple of questions there, so let’s cover as much as we can!
Let’s cover the “how rare are they” part first.
Diamonds are pretty far from rare. The reality is that the process by which they’re made is pretty simple and even common in nature. With that said, certain types of diamonds are pretty hard to find.
While mining, people can usually find many smaller diamonds, ofter with imperfections and in various colors. There are certain criteria that diamonds need to meet to be considered valuable. Sure, the price generally is higher than some feel it should be, but it doesn’t mean that some diamonds shouldn’t be worth a lot!
But as far as how diamonds are formed in nature, there’s really nothing to it. They are a result of carbon getting exposed to a great deal of heat and pressure. The process is so simple, in fact, that we managed to figure out how to make them in laboratory conditions!
Diamonds are the hardest material in the world; we all know that. Most of them formed over 3 million years ago underneath the earth’s crust, which is why we’re now mining for them. Because the process of turning carbon into diamonds is so simple, there are a lot of them to be found underground. And a lot of them are used for industrial purposes rather than for commercial selling.
To cut a diamond into the desired shape that we all come to know and love, they need to be as close to those shapes as possible. Let’s say you find a diamond that managed to form into a long, stick-like figure – you really can’t turn that into one big beautiful diamond!
You can use it to create multiple smaller commercially ready diamonds, and the rest is sold for industrial purposes. So you see, they aren’t rare, but specific shapes and sizes are. There are also other factors that we need to talk about.
Whether or not a diamond has imperfections on the inside and out when rough also factors into its worth. Let’s take a look at these factors.
How Does Diamond Pricing Work: The 4 C’s Of Diamonds
While researching diamonds, you might have stumbled upon this term while researching diamonds, “The 4 Cs” refer to these things: carat weight, color grade, cut grade, and clarity grade.
So what does this mean? Well, depending on these factors, professionals can determine what a diamond will be worth once it’s found in its rough form underground.
The Carat weight is the first box that needs to get checked once the diamond is found. The word carat gets thrown around a lot as if it’s some magic measuring unit that diamonds have. The reality is that it’s just a weight measuring unit, and it equals a fifth of a gram – meaning that a diamond that weighs one gram is referred to as a 5 carat diamond.
While this is an important factor in determining the value, the diamond relies on all the other C’s to get a realistic assessment. As we already mentioned, finding a heavy diamond doesn’t mean that it will be turned into a sellable diamond. But it does help; let’s just get that straight!
The next factor that is looked at is the color grade of the diamond. There is a DHNZ rating that is used, with D being the most valuable. Diamonds are translucent, so if light can go through one with no issues, it’s considered pure, and the rating it gets is a D.
- D – A diamond with a D rating has no color and is entirely translucent.
- H – Diamonds that have an N rating are translucent but have other imperfections on the inside or out.
- N – An N-rated diamond has a yellow hue to it and is, because of this, not as translucent.
- Z – This is the lowest color rating a diamond can receive and it is at this point considered yellow. Also, these diamonds tend to have more imperfections, though this isn’t a rule of thumb.
Basically, the less color a diamond has, the better. Lesser diamonds have a yellow hue to them; because of this, the light can’t go through them so well, and they appear kind of dirty when compared to their high-class shinny brothers!
We know what you’re thinking – does that mean that shiny diamonds are worth more? Well, in a sense, yes! For a diamond to shine, it needs to be clean on the inside and out.
The clarity of a diamond relies on a couple of things. A rough diamond can have imperfections on the inside or on its surface. Once the cutting starts, those interior scratches or imperfections come to the surface, depending on how much cutting is involved.
There are two types of faults that a diamond can have: inclusions and blemishes.
- Blemishes are found on the surface; they are scratches or spots that make it hard for light to go through the diamond. Besides that, they just don’t look so good, to put it in the most simple terms!
- Inclusions are faults that are found on the inside of diamonds. The more blemishes and inclusions a diamond has, the less valuable it is. Simple as that.
The clarity rating goes like this (from most to least valuable): FL (flawless), IF (Internally Flawless), VVS1/VVS2 (very, very slightly included), VS1/VS2 (very slightly included), and SI1/SI2 (slightly included).
Let’s take a look at this rating more details:
|FL (flawless)||A flawless diamond is just as good as it sounds. No faults on the inside or out. These are incredibly rare and hold the most value.|
|IF (internally flawless)||As you can guess from the name, this means that these diamonds are flawless on the inside, but do have faults and blemishes on the outside. These are still very valuable.|
|VVS1, VVS2(very, very slightly included)||This means that the diamond has slight flaws that are seen with a 10x magnification.|
|VS1, VS2(very slightly included)||It is very hard to distinguish between the VVS1/VVS2 grade and this one, but under 10x magnification there’s more flaws to be found.|
|SI1, SI2(slightly included)||There are slight flaws that can be found under 10x magnification, as well as with the human eye.|
|I1, I2, I3(included)||This is the least valuable group as the inclusions can be seen without magnification.|
As we can see, inclusions are the flaws that professionals look at more often in order to determine how much a diamond will be worth. The reason for this is that blemishes can be taken care of, in a sense.
If a diamond has blemished but not many inclusions, it can still be worth a lot. See, by cutting a diamond smaller (if it’s low on inclusions), you’re actually driving the price up. Only seasoned professionals usually do these kinds of cuts, though, and they charge an arm and a leg!
The last part of the process is cutting rough diamonds and turning them into a beautiful market-ready piece of glass!
The standard diamond shape consists of a myriad of measurements: star length, table size, girdle thickness, crown height and angle, total and pavilion depth, the pavilion angle, lower girdle/half facet length, and culet.
We know, we just listed many fancy words, but luckily we won’t go on and on about the details. That’s up to the people who actually cut the diamonds! The simpler terms are brightness, fire, and scintillation. These actually determine the value, as far as the cut goes.
|Brightness||This is something we like to call the shine factor. How bright a diamond is depends on how much white light it can reflect internally and externally.|
|Fire||Fire is referring to how much the white light can scatter around the inner part of the diamond. Scattering white light turns it into all colors of the rainbow. This is why highly valued diamonds look like they have a rainbow inside of them.|
|Scintillation||This is the sparkle effect. It referred to how much a diamond can sparkle – meaning how much the light scatters inside of it.|
The Diamond Cartel
So let’s say that you have in your possession a perfect diamond. Two hundred carats, perfectly cut, flawless, and without a hint of color – who controls the price of a said diamond? You want to sell it for a huge profit, but it’s not up to you. See, the diamond industry doesn’t work exactly like other industries.
Back when the marketing campaign that we were talking about was starting out, the supply was limitless. The De Beers corporation owned most of the mines and machinery needed for the operation, but they needed the demand.
So what did they do? Well, they created a demand for diamonds! Things really haven’t changed as much; the only difference is that there are now a handful of companies that control this industry instead of just one.
The said companies create an artificial demand so that they can make a good profit on the supply! It’s not as strange as it sounds, really. That demand has been set throughout the 20th century, and the numbers haven’t changed much in all these years. People just love diamonds!
But the worth of your diamond relies on the same factors that any other product or industry would depend on.
Your investment turns the potentially valuable rough diamond into a highly sought-after glass. You’re paying the miners, the experts who’ll grade and cut it. The industry does rely on the demand that these companies set, but it’s the 4 C’s and good marketing that get the job done at the end of the day!
So here we are, at the end of the lesson. The diamond industry has only been around for a couple of hundred years, yet its sheer value is unimaginable. We hope that you found the answers you were looking for in this article.
It’s amazing what a piece of carbon can turn into with just heat and pressure. But what’s even more impressive is what we managed to do with all that carbon! The lesson is clear; good marketing is the key to success in this and any other industry!
Read More: What Is The True Reason That Diamonds Cost So Much Money?