Why are diamonds so expensive? Whether you see a symbol of eternal love or just a thing of aesthetic beauty to covet, a diamond is one of the world’s favorite luxuries. Derived from the Greek word Adamas meaning unconquerable, there is a mystique to diamonds that endures. Another enduring factor is the price.

wedding ring engagement diamonds so expensive
Diamond rings symbolize eternal love, making them the go-to gemstone for engagement rings.

There’s always an expectation that there is a premium price to pay for a luxury item. Luxury items in all categories from handbags to supercars are not mass-produced so the high prices are, essentially, in economic terms, down to scarcity. So is this applicable to diamonds? Are diamonds rare and is this what drives the price of diamonds?

Let’s take a look!

A History of Diamonds Timeline

4th Century BC - Diamonds were found in India and traded along the Silk Road

9th Century BC - The first records of diamond mining are found in India

100 AD - Diamonds are noted in the writings of Roman scholar, Pliny the Elder

1330 - The first recognized diamond cutting industry begins in Venice, Italy

1477 - The first (as recorded) diamond engagement ring is presented to Mary of Burgundy by Archduke Maximillian of Austria

1550 - Belgium becomes a major center of diamond cutting and trading

1725 - A small deposit of diamonds was discovered in Brazil

1866 - Erasmus Jacobs found a 21.25-carat diamond along the banks of the Orange River in South Africa.

1871 - A diamond deposit of 83.50 carats was discovered at Colesberg Kopje in South Africa.

1871- The Kimberley Mine began operations

1880 - Cecil John Rhodes formed De Beers Consolidated Mines, Ltd

1892 - Henry Moissan discovered moissanite, a diamond substitute

1931 - Robert M. Shipley founds the Gemological Institute of America (GIA)

1947 - The slogan “A diamond is forever” was coined by advertising agency N.W. Ayer on behalf of De Beers

1950’s - The 4Cs grading system is introduced by the GIA

1954 - General Electric creates the first lab-grown diamonds

1988 - The first major diamond mine opens in North America - the Ekati Mine in Canada

What Drives the Price of Diamonds?

Various factors influence the price the diamond market sets for cut diamonds.

Are diamonds rare?

You may notice the word De Beers mentioned twice and significantly in the above timeline. When Cecil Rhodes formed the company, it was to control the diamond supply and therefore the price. For more than a century, De Beers had a monopoly on diamonds. This was because most of the world’s supply of diamonds came from De Beers mining operations in Africa.

In the second half of the twentieth century, deposits of high-quality diamonds were discovered and diamond mining on a large scale began in Russia, Australia, and Canada. Initially, the companies that owned and operated the new mines were part of the De Beers cartel. Various circumstances, however, led to these companies breaking away from the cartel, eroding the De Beers monopoly on the diamond industry.

engagement ring diamonds so expensive
The word diamond derives from the Greek word "Adamas" meaning invincible.

Today, De Beers controls about 30 percent of the diamond mining industry with other major players being Alrosa (Russia) and Rio Tinto (British-Australian). Together these three mining companies control more than 60 percent of the world’s diamond mine production.

From the beginning, Cecil Rhodes claimed diamonds are a rare commodity (i.e. scarce). In the 1800s, this was essentially true. There wasn’t a great number of mines turning out high-quality gemstones.

The issue of rarity is actually a subtle one. Diamonds are more abundant than many other gemstones, overall there is a plentiful supply of mined diamonds. The issue is that they aren’t all gem quality. Not all rough diamonds can be made into gemstones. Many natural diamonds are only useful for industrial purposes because they are not suitable to be set in a piece of jewelry. They are either poor quality with lots of inclusions or are an ugly color.

Costs of diamond production

Nothing comes cheap in the diamond industry. Before you can admire that diamond necklace at the jewelry store, it all starts with the raw product. Natural diamonds can take millions of years to form in the Earth’s mantle up to 150 miles below the Earth’s surface. Volcanic eruptions and tectonic plate shifts then move the diamonds to mineable depths.

Next is the mining process. Being a resource-hungry industry, the cost of mining is a major factor in the price tag of diamonds. Once the diamond supply has been sorted into stones for industrial purposes and stones of gem quality, the raw gemstones need to be made into the precious stones we know and love as diamonds.

Turning rough diamonds into diamonds that can be used in jewelry is a highly skilled job. The cost of a professional diamond cutter is another factor of the price tag. Unlike many jobs that have been automated, the craftsmanship of an expert diamond cutter cannot be replicated by technology. As of yet, no robot or machine can turn out a stunning round brilliant or beautiful princess cut diamond.

Marketing

When Cecil Rhodes took control of the diamond industry, he also kickstarted one of the longest enduring and sustained marketing campaigns ever. De Beers has woven a web of mystique around diamonds and including perpetuating the idea that they are rare.

There is also the idea that the more expensive a piece of jewelry containing an impressive stone is the more rare and wonderful the diamond is. Not true.

This is the idea “sold” by diamond retailers and jewelry stores. A diamond’s true value is not its retail price tag, but as it has been since the introduction of the grading system, based on its 4Cs.

lab-grown diamonds so expensive
Lab-grown diamonds are up to 50 percent cheaper than mined diamonds, making them a great alternative price-wise.

Every diamond sold in the USA should have a GIA certificate that details how it measures up to the recognized grading system. These 4Cs are color, cut, clarity, and carat. The most expensive diamonds, theoretically, should be at the top end of each of these grades but all factors are in play. For example, a good carat weight may be offset by low quality because of too many inclusions. Or clarity may be offset by a low placement on the color grading scale.

When a jeweler sets a price for a diamond or a piece of diamond jewelry, they will take the 4Cs into account but also the work involved in producing the piece (design and manufacture). If they are a high-end retailer, you will also pay for the designer's name.

The Future Price of Diamonds

Natural diamonds face an interesting future. In recent years, lab-grown diamonds have seen major growth in supply and demand. Unlike simulants, lab-grown diamonds have been certified as being real diamonds. There is no difference between real stones and lab stones but lab-grown diamonds are up to 50 percent cheaper than mined diamonds.

Lab-grown diamonds also have a number of advantages that will probably only serve to push the price lower in the future.

  • They are cheaper to produce.
  • Because it is a controlled process, high-quality diamonds are produced.
  • Colors not produced in nature are possible.
  • There are no environmental issues such as the destruction of landscapes that diamond mining causes.
  • There are also fewer ethical issues. Lab-grown stones will never be blood diamonds nor are humans exploited in the ways they are and have been in the diamond mining industry.

It will be interesting to watch how the diamond market develops as more people choose lab-grown diamonds over mined diamonds.