Why Aren‘t Diamonds Cheap?

Despite being composed of the relatively common element carbon, diamonds have long seemed like they should cost much less based on their abundance in the earth‘s crust. Yet high quality gem diamonds remain exponentially more expensive per ounce than precious metals like gold or platinum, and most other gems. This perplexing paradox ultimately boils down to basic economics, clever marketing, and the immense difficulties and costs associated with diamond production.

Finding Diamonds is Hard and Mining Them is Harder

Locating economically viable primary diamond deposits takes tremendous effort and luck. Modern diamond explorers employ advanced technology like airborne magnetic surveys, microgravity surveys, and heavy mineral sampling to narrow down potential kimberlite pipes or secondary alluvial deposits. Still, less than one in 200 kimberlite pipes end up possessing high enough diamond grades for profitable mining.

Once a primary deposit is identified, extracting the diamonds requires moving unfathomable quantities of host rock. At Russia‘s Mirny diamond mine for example, trucks have hauled away over 1.25 billion tons of ore over 60 years to produce an estimated 90 million carats of rough diamonds. Finding gems in all that rubble takes a labyrinth of crushers, screens, dense media separators, X-ray sorting and finally hand sorting.

High-Quality Diamonds are Exceptionally Rare

The immense volumes of ore processed result in substantial volumes of diamonds produced globally each year. In 2021, that total reached 111 million carats. However, these absolute carat counts are deceiving. Over 80% of stones extracted are unsuitable for use as gemstones, only fit for industrial applications. Of the 20% that make the cut, most are small, low-color commercial grade diamonds. Worldwide there are likely only about 10,000 diamonds produced each year over one carat that can earn the top color grades of D-F. These fine gems exhibit the purity, brilliance and beauty that diamond connoisseurs covet. Scarcity translates directly to higher prices.

The Quest for Titans – Oversized & Flawless Stones

Prices increase exponentially for diamonds over one carat, as carat weight itself starts to become rare. A one carat stone may run $5,000 while a two carater may cost $20,000. But in the upper echelons, the scaling goes parabolic. The Cullinan diamond unearthed in South Africa weighed a massive 3,100 carats. The two principal stones cut from it make up the 530 carat Cullinan I diamond worth an estimated $400 million, and the 317 carat Cullinan II diamond valued around $150 million. These legendary diamonds exemplify the mind-boggling prices realized for oversized, high quality gems.

Natural Diamond Supply is Tightly Controlled

While diamonds are not as scarce as the industry pretended for decades, their supply is tightly constrained. Rough diamonds not suitable for gems get crushed for industrial purposes. But the distribution of gem quality rough diamonds flows through just a few major players worldwide led by De Beers, Alrosa, Rio Tinto and Dominion Diamonds. These dominant firms have worked cooperatively for decades to carefully control rough diamond inventories and regulate supply volumes released for cutting and polishing. This limits availability in order to maintain higher prices. Attempts by upstarts to disrupt this quasi-cartel have thus far not succeeded.

Manufacturing Maximizes Value

Diamonds coming directly out of mines do not show their full beauty. Diamond cutters and polishers play a critical role unlocking a rough diamond‘s ultimate value. Cleaving or sawing the stones into the optimal shapes, then executing the precise facet cuts and polishes necessary to maximize brilliance, fire and scintillation requires tremendous skill. The difference between a well-cut and poorly cut diamond can impact value by 40% or more. This manufacturing process also contributes significantly to end consumer pricing.

Diamond Grading is Key

Diamonds are graded based on the 4Cs – carat, cut, color and clarity. Exact standards and nomenclature developed by independent labs like GIA and AGS provide diamond sellers and buyers an objective reference for assessing quality. The top grades in each category command substantial premiums. A 1 carat diamond with excellent cut, D color rating and IF (internally flawless) clarity might cost $22,000 while a 1 carat stone graded Good cut, I color and SI2 clarity could sell for $3,500. Understanding these quality metrics is essential for navigating the diamond markets.

Diamonds as the Quintessential Luxury

Diamonds hold a unique place in the human psyche. As English diamond pioneer Charles Lewis Tiffany put it, “Diamonds are intrinsically expensive and the only way to justify their price is to make themlook expensive." The diamond industry has brilliantly succeeded in imbuing these crystallized carbon allotropes with intangible value and significance.

"A Diamond is Forever", "Breakfast at Tiffany‘s", Marilyn Monroe singing "Diamonds Are a Girl‘s Best Friend" – pop culture has been saturated with references elevating diamonds as the essential symbols of wealth, status and love. This programmed desire enables diamond sellers to realize astronomical markups and maintain high prices.

An Investment Unlike Any Other

There is no asset quite like diamonds. As a concentrated store of value, they compete with gold and certain art or collectibles. But their portability, universal appeal, and ability to instantly project luxury puts them in a class of their own. Despite sometimes erratic short term pricing, diamonds have demonstrated favorable price appreciation over the long term. The epicenter for diamond trading is the Rapaport Price List. Analyzing Rap data shows polished diamond prices up around 180% since 1980, compared to gold‘s 500% rise over that period.

While diamonds are not bought as an investment by most, their enduring value makes them ideal for preserving and transferring wealth. And for many, the chance to own something exquisitely beautiful carries worth that cannot be quantified. So in that sense, exceptional diamonds may be priceless.

So in summary, basic scarcity, difficulty and cost of diamond production, their managed supply, and their unparalleled allure as the ultimate gemstone make them far more than crystallized carbon. These forces will likely keep diamonds from becoming cheap any time soon. For those seeking diamond beauty on a budget, select based on cut quality, lower color grade in near-colorless, and focus on sizes under a carat. But for pure magic, occasionally it’s worth paying up for perfection.