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Why Are Diamonds Expensive?

Why Are Diamonds Expensive?

There are a number of factors that make up the cost of a diamond in addition to the Four C’s of Diamonds. This article by diamond expert Dan Moran of Concierge Diamonds in Los Angeles attempts to explain the different elements that factor into a diamond’s price and what makes them comparatively so expensive to other goods.

Written by Dan Moran of Concierge Diamonds

Three Stone Pear Shaped Diamond Engagement Ring with Marquise Side Stones

OK, let me start with a disclaimer. I may come across as a bit harsh or preachy here, and so I apologize in advance. I’m going to take this question, “Why are Diamond Expensive”, at face value, and try to answer it. If I come across anything other than matter of fact, it’s only because in many instances this is a loaded question, and feels to someone in my line of work more like an accusation than an actual question. But I’ll try to divest myself of that and answer it as if it was asked innocently, and take it at face value.

First of all, who am I and why am I qualified to respond? My name is Dan Moran, and I’m CEO of Concierge Diamonds in Los Angeles, CA. We import and sell diamonds wholesale, and manufacture custom jewelry on behalf of jewelry stores and for private clients (a lot of redditors lately!) around the world.

I started the company 8.5 years ago, and have grown to a dozen employees. I’ve been in the diamond business for nearly 20 years, and my family has been in it for almost 100 years. In fact, my great uncle was among the founders of the Israel Diamond Exchange, one of the largest diamond trading centers in the world. I grew up in this industry, and have seen it from the inside.

That said, I have no real interaction with the large diamond consortiums.

They deal almost exclusively in rough diamonds, and I work with polished stones. The cut diamond market is dominated not by large players, but by relatively small family businesses. In the LA diamond district (a large one, but not among the top 10 globally), for example, there are over 1,000 dealers working, and while the largest are certainly very wealthy and successful, they are not on the scale of a publicly traded company, etc.

The largest player in LA still has fewer than 100 employees. So, my perspective is definitely that of “boots on the ground,” not from some abstract boardroom somewhere. I am an active player in the space, and we made about 900 custom rings last year, so I buy and sell diamonds every day.


Now, your question. Why are diamonds expensive? 


For the purposes of my response, let’s assume that “diamond” means a natural diamond. Lab grown diamonds have their own cost and price structure, and I’m not getting into that here. There are three primary drivers of the prices of diamonds in general (I’m not talking about the 4 Cs here – those drive the value of a particular stone as compared to others. I’m talking about diamonds in general).

Those factors are rarity, acquisition cost, and perceived value.
Classic Pear Shaped Diamond Engagement Ring with Diamond Halo French Cut Pave


Rarity

There is a public misconception that “diamonds aren’t as rare as everyone thinks.” First of all, I find that kind of funny on the face of it, because if EVERYONE thinks they’re not so rare, then who is the EVERYONE that thinks they are? But I digress. The reality is that while there continue to be diamonds mined each year, global supply is decreasing. In fact, last year, the Argyle mine in Australia (historically one of the most productive mines in the world) closed permanently – miners declared that they had found all there was to find. The same is expected for many of the world’s largest mines in the next 1-3 years.

We’ve simply gotten them all! Global production peaked in 2006, and the total amount of diamonds found has decreased every year since.

It’s possible we’ll find new sites, but really smart, really motivated people have been trying to do that for a while, and we haven’t found much. The next step for miners will be to look into undersea mining, but we can only imagine the incredibly high cost of doing that.

It’s also important to note that, in the past, while diamonds were abundant in the mines, the VAST majority of those stones were not of gem quality, and even those that were were mostly very small (0.01-0.05 carats when polished). Those make up the bulk of mining production. So, typical “center stone” size and quality diamonds (1ct and up) have ALWAYS been quite rare

At the same time, global demand for diamonds has dramatically increased in the last 20 years. The industrialization of India, China, and other countries around the developing world has created a wealthy middle class. They want diamonds, and are willing to pay top dollar for them. For a while now, the USA has not been the #1 consumer of diamonds. We used to be in the 80s and 90s, but those days are over, and I don’t think they’re coming back. So, if the bargain hunting consumer on the internet searches for the cheapest possible stone, he can rest assured it’s cheap for a reason. If it was a nice stone, it would have already been sold for 20% more in Hong Kong, Mumbai, or Shanghai. That’s just how it goes.

To summarize, global supply decreases every year, and global demand increases. Econ 101 tells us that prices will rise, and this is what supports the value of diamonds.


Acquisition Cost

I’ve touched on this already, but as diamond mines dry up, it’s more and more expensive to get them. We’ve long since found virtually all the primary (diamonds just lying around in a field somewhere) and secondary (diamonds in riverbeds) sources. Mines (digging deep underground) are tertiary sources, and we’re getting to the point of maxing them out too. Next will be quaternary sources (undersea or deep space) diamond mining, and of course those will be orders of magnitude more expensive, so I don’t expect any meaningful progress there in the foreseeable future. So, on a gross 100,000 foot level, what we’ve found up to now (and for a few more years) is all there’s going to be. It’s just going to be prohibitively expensive to get more, if we can even find them. Diamonds are a good parallel to real estate here. As Mark Twain once said, “buy land – they stopped making it.” The same will soon be true of diamonds

Perceived Value

On some level, diamonds are valuable because THEY JUST ARE. I know that’s unsatisfying, but it’s a fact. Human beings have invested certain objects and materials (gold, silver, land, bitcoin, you name it) with value, and we treat those assets as inherently valuable. Diamonds have acted as a reservoir of value for thousands of years, and that’s not going to change. The utility of diamonds as universally accepted portable wealth is just too much to ignore. Diamonds hold value because we, as a species, have agreed that they do, and though you might not like it, they’re as good an instrument of value as anything else.

It’s easy, and convenient, to blame “large corporations” for artificially propping up prices, but it just has no basis in fact. 50 years ago, maybe – when De Beers did control the market. But those days are LONG GONE. Today, Alrosa is a larger player than De Beers, and De Beers is fighting it out with Rio Tinto for second place. There are several large players in the rough diamond space, and it is FIERCELY competitive, with razor thin margins. There is no opportunity for monopolistic market-making – the competition will eat your lunch in two seconds. Again, Econ 101 tells us that when there’s a competitive space with knowledgeable consumers (and the diamond cutters and dealers buying these stones are very, very knowledgeable), market manipulation of the kind often mentioned here on reddit and elsewhere just isn’t possible.

So, rather than blaming “Big Corporate” or more simply “The Man,” accept the reality that diamonds are genuinely rare, precious, and valued and that factors into the cost of diamonds. Now, that doesn’t mean you HAVE TO buy into it. Lots of things are valuable, but that doesn’t mean you have to buy them all. But candidly, just posting online that it’s “not fair” is some flavor of intellectual laziness, and it seems to me designed to justify buying something else that’s easier on the wallet. If that’s what you want to do, then go for it! Buy a synthetic, or a sapphire, or a topaz, or any number of semi-precious stones that can be had for a few bucks. Or don’t buy a ring at all!

But don’t pretend you’re doing it out of some kind of ivory tower ethics or to “beat the system.” Just acknowledge that you don’t want to spend the money on a diamond and move on with your life. Diamonds ARE worth what they cost – the market validates that every day. After all, ANYTHING is worth what people are willing to pay for it, and people are certainly willing to pay for diamonds. So, shop wisely (I strongly recommend expert help!), get the best value you can, and make your purchasing decision. 

I hope that helps! For further education, I’d recommend you scroll through my post history. I’ve been very active on reddit for a long time, and there’s a wealth of stuff (and, I’m sure, a whole bunch of useless crap I typed out some time!) there. And feel free to reach out to me with any questions, any time.

Good luck!

If you’d like to learn more or schedule a free consultation, contact me here.

To see our infographic about the difference between Lab Grown Diamonds and Natural Diamonds, click here.

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