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Why Are Diamonds So Expensive?

Why Are Diamonds So Expensive?

Contrary to popular belief, diamonds aren’t rare compared to other gemstones, yet they are pretty expensive. If it’s not their rarity, one can’t help but wonder what makes diamonds so valuable. 

So, today’s question is: Why are diamonds so expensive?

To put it simply, diamonds are expensive because of the market supply and demand. De Beers is one of the companies that stockpile diamonds, limit supply – and drive up demand and costs.

So, how do they manipulate the diamond prices, and what can you do to avoid paying extra if you’re looking to purchase a diamond? 

Don’t worry. We’ve covered all of these questions in this article, so without further ado, let’s dive in!

The De Beers Corporation

Anyone who knows anything about diamonds has probably heard of the diamond giant De Beers, which retains control of around 40% of the world’s rough diamonds and dictates a great deal of the market.

An event that De Beers hosts every season helps set the diamond pieces: Diamond dealers compete to be one of the sight-holders at De Beers sights. These companies are invited to view and buy diamonds directly from De Beers 10 times a year.

De Beers dictates how much – and what kind of – rough diamond to sell to each company and at what price. Dealers can only accept or reject offers, each valued in the millions. And no, they do not get to negotiate.

Additionally, sight-holders must obey strict rules and can’t sell these diamonds to retailers who will lower the prices. De Beers has the right to know each of the sight holder’s markets and get insight into the inventories of each sight-holder, and can also audit the companies.

How De Beers Controls Diamond Market Value

If the prices of diamonds fall, De Beers will sell fewer diamonds, thus decreasing supply – or will charge sight-holders higher fees. 

In addition, De Beers will flood the market if a new supplier emerges, with diamonds with similar quality at a substantially lower price, therefore driving out the competition.

Because De Beers is so protective of the diamond market, the company will even buy diamonds stolen from its mines to prevent thieves from selling the stones at lower prices.

Now that you know how the diamond market works, let’s see how to calculate diamond prices so you don’t get ripped off and overpay.

Related Read: Who Controls The Price Of Diamonds?

Basic Rules For Buying A Diamond

When discussing what a good deal is, you need to know what you want and how to be sure you will get what you paid for here. You have to make sure you’re following the process and ensure you aren’t getting scammed.

It can be tricky figuring out how much you should pay for a diamond, and it can equally be hard understanding how to get the best deal for it.

  • Certification – That’s the first and most important step. Certification is an absolute must if you plan on spending more than $1000 on a stone. The purpose of buying a diamond accompanied by a certificate is to give the buyer peace of mind that they’re getting the real thing.

The GIA and AGS labs are the only ones that provide trustworthy certificates; they’re the gold standards for the diamond industry.

See Also: Is IGI As Good As GIA?

  • Quality – Now that you know which certificates to look for, you need to understand all the qualities of a diamond listed on the certificate and what you should do with the provided information.

Chances are you’ve heard about the 4C’s of diamonds – these are crucial, and we’ll talk more about them later on.

See Also: 4 Cs Of Diamonds – Order Of Importance: The Most Important C?

  • Pricing – The easiest way to figure out the prices is similar to what you’d do with any other item. Shop around, search online. Generally, a store will be more expensive than what you can find online. The key is to figure out the right baseline, after which you can decide if it’s worth paying.

Diamond Prices

Diamonds are priced per carat. However, diamond prices can vary depending on a diamond’s cut quality, shape, clarity, and color.

Here’s an example: The cost of a 1-carat diamond can range from $1500 to more than $15000 for a highly well-cut, high-quality stone. A 2-carat diamond could cost as little as $600 or as much as $70000 based on its cut, shape, color, and clarity grades.

As you can see, that’s quite a price range, with some stones costing up to ten times higher than other stones of the same carat weight.

Diamond prices can depend on such a wide range of factors that it can be challenging to give a proper price estimate for diamonds as a whole. The most significant factors are the 4C’s – cut, quality, color, clarity, and carat weight.

The better a diamond’s 4C’s are, the more expensive it will be. That doesn’t necessarily mean that you can’t get a good quality stone without paying a fortune: 

With diamonds, it’s essential to maximize the amount of money you spend on factors that affect their appearance, all while reducing the amount of money you pay for the factors that don’t.

Related Read: Why Are Diamonds Valuable? What Makes Diamonds Valuable?

Calculating Diamond Price Per Carat

As we mentioned above, diamonds are priced per carat. Now, let’s say a 0.5-carat diamond has a price of $1300 per carat. That diamond’s price for the stone will be $1300 x 0.50, or $650.

Or, let’s say a 1-carat stone has a price of $4200 per carat. This one is easy to calculate since the stone is 1 carat, the price for it is the same.

Diamond prices per carat drastically increase as you go to higher weight categories. In short, the hight the stone’s carat weight, the higher the total amount you will pay per carat to buy the stone.

Therefore, diamond prices exponentially increase with carat weight.

Price Of 1-Carat Diamonds

The price of a 1-carat stone is generally between $1300 and $16000, depending on factors like the diamond’s cut quality, color, clarity, and shape.

Below we’ve included the average price ranges for 1-carat diamonds in most common diamond shapes:

How To Save Money When Purchasing A Diamond?

Saving money when buying diamonds is all about finding convergence where a diamond’s value for money and quality intersect.

There are several steps involved in this. 

The first one is to realize that diamonds are often priced based on their category and not on the objective measure of their appearance.

The second step is to understand how the cut impacts the price at which a loose diamond can be sold.

The third and final step is to learn how a diamond’s clarity and color grades impact the price and how the right choice of clarity and color grade could aid you in buying a gorgeous stone at the right price.

Now let’s look at each of these steps in more detail.

Related Read: What Is The Cheapest Cut Of Diamond?

The Importance Of Categories

We stress this because you may falsely believe that prices per carat increase indefinitely as the weight of the stone is increased. However, this isn’t the case.

Since diamonds are retail products generally driven by emotion rather than reason, a 0.99-carat diamond is worth about 1% more than a similar stone weighing 0.98 carats. Still, a 1-carat gem is worth around 20% more than a 0.99-carat diamond. 

Why is that? It could be because you can say it’s a 1-carat diamond, or maybe due to its three full digits. Who knows, but for diamonds, it’s all about feelings.

How Cut Impacts Price

You could imagine that if there’s a 20% price jump from a 0.99-carat diamond to a 1-carat gem, the cutter who loses that 0.01 carat to make a diamond more pretty will lose their job.

Maybe with the nicer cut, the diamond will only be worth 15% less instead of 20%. However, it’s still a significant loss. This type of price manipulation by maintaining categories has been taken to an extreme by many of the world’s biggest diamond companies.

They will take rough diamonds with proportions that should have been used to make 0.75-carat to 0.85-carat diamond. Instead, they’ll keep over 0.96 carats to sell them as 1-carat diamonds to the large jewelry chains.

Even though they have to sell these stones at steeper discounts than well-cut 1-carat diamonds, they still profit from a significant premium to well-made 0.75-carat diamonds.

The lesson here is not to get attached to a diamond within a specific carat weight category: A well-cut 0.9-carat diamond will look significantly more beautiful than a poorly cut 1-carat gem, all while costing the same amount – or even less.

How Color And Clarity Affect Diamond Price

A good amount of the diamond pricing equation also depends on the Rapaport Prices – an industry price list that shows standardized pricing for different diamond clarity and color grades.

One fascinating result of the entire business being based on this list is that far too much weight is given to clarity and color in establishing price.

As we already mentioned, the diamond cut is arguably the most crucial factor when determining the diamond’s value. It’ll have a more significant impact on the diamond’s appearance than its clarity and color grade in almost every case.

Objectively speaking, a diamond with G color and SI1 clarity grade with the ideal cut would be a lot prettier than a diamond with G color and VS2 clarity grade and average cut.

It’s essential to have someone aid you along the way and guide you in determining different factors that go into diamond pricing.

Learn More: Best Country To Buy Diamonds: Where To Buy Cheap Diamonds In The World?

What Is Rapaport Price List? 

Martin Rapaport started as a rough sorter and cleaver in Antwerp, Belgium. 

In 1975, he started brokering rough and polished diamonds in New York City, and later on, in 1978 created the Rapaport Prices List.

Apart from creating the list, he’s known for founding many businesses in the diamond industry. That includes an electronic trading network and diamond-related news in both print and web format.

The Rapaport diamond report price list is released weekly – but it doesn’t necessarily change every week. The list is used as a baseline for pricing loose diamonds sold as individual stones with generally SI3 (or better) clarity grade and K (or better) color grade.

Read More: Price Of Diamonds Over The Last 50 Years: How Did It Change?

Diamond Pricing Alternatives To The Rappaport List

Over the years, there were attempts to create alternatives to the Rapaport list in the diamond industry. Why? 

Well, there are things to criticize about the Rapaport list. Nobody knows what his methodology is – and Martin himself obviously has a financial interest in diamonds. So there’s an apparent conflict of interest. 

One of the most valiant efforts to create a new pricing standard comes from the IDEX company. Similar to Rapaport, IDEX provides an online B2B industry diamond exchange and analysis. But unlike Rapaport’s list, its diamond pricing tool is entirely transparent about its methodology.

IDEX price list has gained the support of several major diamond dealers – but has been met with resistance on the broader market.

In addition to the Diamond Price Report, IDEX offers another customer-focused price list called the Diamond Retail Benchmark. Like the Rapaport list, this one provides a high-level standard price, off of which a discount should be added to arrive at the final price.

Related Read: Diamond Price List: How Much Is A 0.1 To 40 Carat Diamond Worth?

Bottom Line

Why are diamonds so expensive? 

Well, it’s simple – market demand. De Beers is a company that keeps manipulating the market’s supply and demand of diamonds, thus dictating the high prices.

Keep in mind that, in general, when it comes to diamonds, there are good deals but no great deals. If a diamond is priced extremely low, chances are it has a drawback in one of the 4C’s. 

The key is to be familiar with what goes into establishing the diamond’s price to make informed decisions.

Related Read: What Is The True Reason That Diamonds Cost So Much Money?