Why Diamonds are Valuable & How Being Expensive Fuels Sales
Diamonds are a beautiful gem, but there are many beautiful precious and semi-precious gems that cost a lot less. People from many cultures spend serious money on this sought after rock—but, why?
Why are diamonds so valuable? Value is based on the principle of supply and demand, however, the supply of earth-grown diamonds has been carefully controlled to create the appearance of rarity, which artificially drives prices higher. For many decades, De Beers controlled supply as a Monopoly, today, the industry controls it as a Cartel.
The role of diamonds in our culture has changed so much over the past hundred years! Knowing something about that history will help you to understand exactly why diamonds are valuable today, and why we continue to buy them even when they’re so expensive. Keep reading!
How Diamond Engagement and Wedding Rings Became Popular
Cecil Rhodes was born in England but later lived in South Africa, where he rented water pumps to diamond miners. He shifted the focus of his business when he saw an opportunity and purchased his first diamond mind from two brothers with the name De Beer. Over the next several years, Cecil purchased mines and merged with others, until he eventually controlled nearly all diamond mining in South Africa.
Control over South African diamond production wasn’t enough for Cecil, he had a grander vision. He wanted to be able to have control over diamond prices. The only way to do that was to control supply—not just for South African diamonds, but the worldwide supply. He formed two distribution companies to help him accomplish the control he was seeking. The first, which was headquartered in London, was called ‘The Diamond Trading Company.’ The second, which was based in Israel, was called ‘The Syndicate.’
Many other mining companies quickly began moving their diamonds through the new distribution companies that Cecil had formed. When Mr. Rhodes died in 1902, he had come to control all but 10% of the world’s rough diamonds flow between his production and distribution companies.
Earnest Oppenheimer also owned a diamond mining company. In the wake of Cecil’s passing, he starting buying his way into De Beers, until he eventually became Chairman of the Board 1927. Earnest took the stranglehold of De Beers to a whole new level by negotiating exclusive agreements with diamond buyers that forced suppliers to send their rough diamonds through the distribution companies that Cecil had formed if they hoped to sell them—they were left with no alternative. The De Beers family of companies had created a true monopoly. The controlled the pricing and terms under which diamonds were sold worldwide.
The Great Depression shook Americans to their core. It left them deeply frugal and practical in their expenditures. Diamonds were rarely part of engagement or wedding rings at the time. Other types of stones were commonly used instead. Most women didn’t even want a diamond at the time. They would much rather have a washing machine or a new oven—something more practical.
De Beers identified the United States as the next big growth market, but they had to get past the frugal tendencies that were so prevalent at the time, so they hired the N.W. Ayer advertising agency out of New York. The agency was tasked with creating demand and convincing Americans to open their wallets for diamonds by making an emotional appeal rather than a practical one.
Who could effectively argue that people of time NEEDED a diamond for practical reasons—especially when they were so expensive? That couldn’t have been done, so they instead created an emotional draw. The new marketing slogan in 1947 really struck a nerve with the American consumer. The infamous slogan was, ‘A Diamond is Forever.’ Their marketing messages intertwined the concept of love and diamonds until the idea was adopted into American culture.
Through constant conditioning from marketers, we began to, at least subconsciously, believe that love and diamonds went together. The greater the love…the larger the diamond. Women expected a diamond a proof of love. Men felt pressure to propose with a nice diamond as a symbol of their value as a future husband. By the 1960s, diamond giving (and expectation) had been fully ingrained into the American culture.
With one powerful market conquered, De Beers set out on conquest for similar victories in new markets around the globe. China, Japan, and India have all proven very successful markets to infuse a diamond culture into. These were places that also didn’t have a tradition of gifting diamonds as part of the courtship and marriage process. Several of those cultures still practice arranged marriages heavily, but skilled and persistent marketers have created thriving business for the diamond industry in each of those lands … along with many others.
When De Beers entered Japan in 1967, fewer than 5% of brides received diamond rings. Less than 15 years later, roughly 60% of brides in Japan were receiving diamond rings. It became the 2nd largest market for the company, delivering more 1 billion dollars a year to the rich and growing organization. China has had a similar story of growth and acceptance. In China, they’re also testing new messages that are being embraced and fueling sales. Advertisers tell Chinese women that they don’t need to wait for a man to get a diamond. That it’s a statement of achievement and self-sufficiency, so many working Chinese women are buying diamonds for themselves, in addition to those purchased and given in marriage.
How Rare are Diamonds?
Most people tend to believe that diamonds are rare because they’re so expensive. It must be the universal principle of supply and demand at work, right? The answer is ‘yes’ and ‘no’. It’s more like artificial (carefully controlled supply) and demand—which leads to an artificial (carefully controlled) price. Because the mined diamond industry is run like a cartel, they can control supply and ensure that they never release too many diamonds into the system.
If they didn’t have such tight control over supply, too many diamonds would certainly enter the market and prices would fall. This means that diamonds don’t have a true, open market, value that’s in line with their retail price. They have a price that’s artificially high, as a direct result of market manipulation.
Do you know what it costs to extract a 1-carat diamond from the earth? You might reasonably get $1,000 or more, I mean they’re hard to find, right? De Beers released reports in 2015 that listed their cost per carat that year at just $104! Can you believe that! Diamonds don’t cost so much because they have to, they cost as much as they do because they want them to—they want a big fat markup, and they want people to strive for diamonds as a status symbol. They can ONLY survive as a status symbol as long as they’re very expensive.
Because mined diamonds are controlled by a cartel, diamond prices have had little of the price fluctuations that are common with other commodities. Diamonds aren’t nearly as rare as they make them appear to be. In fact, De Beers related distribution companies have a warehouse full of diamonds that are held back in London. They won’t outpace demand. They would rather sit on their excess production as long as needed.
The Rarity of Diamond Compared with Other Precious & Semi-Precious Stones
How many grown women do you know that don’t already own a diamond (ring, earrings, necklace, bracelet)? Probably not many. How rare can diamonds be if that’s the case? There’s plenty of supply to stock jewelry stores around the globe. When was the last time you saw a jeweler that was out of inventory—never, right? Diamond is actually one of the most common gems. It’s estimated that 147 million carats of diamonds were mined in 2018.
Many other gem varieties are far more rare. Rubies, Emeralds, Sapphires are a few examples.
Morganite is a stone that’s another interesting example. It’s far more rare than diamond. Why then isn’t Morganite a more expensive option? Because no one has created a Morganite monopoly and hired talented advertisers to convince you that you need to buy it to prove your self-worth or the value of your love.
Prices also haven’t been hiked to a point where they can be used as a status symbol yet. If all of those elements were put in place, it’s conceivable that Morganite, as just one example, could potentially become a more envied, sought after, expensive, and exclusive option. Man Made Diamonds, Moissanite, Morganite, Sapphire, Aquamarine; any stone that’s beautiful, to the person giving and receiving it, can symbolize love and commitment just as well as any other.
How Diamonds Would Change in a More Open, Free Market System
When diamonds were discovered in Russia, De Beers bought up their supply as diamonds were released into the market. They didn’t want competition from their mines. They were smaller and lower quality stones, so they used them largely for embellishment around rings with larger center stones and for eternity bands. When competing mines opened during the decades that De Beers had a stranglehold on the industry, they would push them out of the market by whatever means necessary. They were very effective at defending their monopoly.
What would happen if there were no monopolies or cartels in the diamond industry? What if individual suppliers competed in the open market in terms of price and quality? In that environment, do you think we’d be paying $4,000 to $25,000 a carat for diamonds? Of course not. There’s an ample supply of the gem available in Africa, Canada, Russia, Australia, and other nations. Price would be driven down as suppliers improve processes and find ways to produce the gems more inexpensively
Buying Significance
Why do we continue to pay the inflated prices by the diamond cartel? Because we’re trying to find and buy something external to fill an inner need. When you boil it down, the marketing messages that De Beers has pushed on us through newspapers, magazines, and the airwaves for generations has taught us that diamonds give us significance. They make acceptable, maybe even envied—but at least not looked down on.
We wear them to show that we’ve achieved success in love or wealth accumulation. In reality, though, they don’t mean either. People with large diamond rings often have horrible marriages. Those with simple diamondless wedding bands also have a shot at wonderful, loving, marriages. People that really can’t afford diamonds may purchase them, so they can appear wealthier than they actually are. Again, in all those cases, we’re really chasing a feeling of value and significance without realizing it.
The demand for diamonds that fuels sales for the diamond industry doesn’t come from the beauty of the stone. It comes from what we think stone means—what it says about us. De Beers has shaped that narrative. They’ve invented what it means (self-serving as that is) and we’ve willingly accepted the conditioning that they’ve tried to feed us. Ultimately, much of the monetary value in diamonds is based on fake things—fake (manipulated) scarcity, and untrue insinuations that a stone, of any kind, can fill internal voids and perceived inadequacies.
Don’t get me wrong. Diamonds are beautiful, and I don’t think that people that want to own them are weak or small minded. When we’re conditioned by the media, marketers, or society to think and spend in a particular way, we often don’t recognize the conditioning. We rarely snap out of it long enough to see things from another perspective and realize that we have a choice.
Lab Created Diamonds
De Beers have fought, and feared, competition since their inception. They’ve tried hard to maintain absolute control over supply, so they won’t outpace demand and cause prices to fall. Knowing that, how would you expect De Beers to attack a significant competitor? They try to flood their market with lots of product (more supply than demand) to lower prices. This is exactly what they did in 2018 when they shocked the industry by announcing that they were going to start producing and distributing lab created diamonds under a sister company’s brand. Their intention was to devalue man made diamonds in hopes of driving competitors out of business, and discrediting lab created diamonds in the eyes of consumers, as a volatile product that can’t maintain real value.
De Beers, and the rest of the mined diamond industry, is trying to defend their ability to keep prices artificially inflated, while laboratories are making man made diamonds that look visibly indistinguishable (even to gemologists and jewelers)! The stones are also made entirely of carbon, they’re just as hard and equally durable. Best of all, lab-cultured diamonds cost about half as much as earth-grown diamonds.
The mined diamond industry mostly treats lab-grown diamonds like 2nd class citizens that barely deserve to be acknowledged. They’ve fought hard for the right to refer to man-made diamonds as ‘Synthetic Diamonds’ (which insinuates that they’re fake, when they aren’t). That battle was lost in 2018, when the FTC (The Federal Trade Commission) came out with some new guidance, indicating that lab-created diamonds are actual diamond, and that it’s a misleading and deceptive practice to refer to them as ‘Synthetic’ for that reason. By the same token, it also said that buyers deserve to know what they’re purchasing, and that lab-created diamonds must be titled so it’s clear that they weren’t earth grown.
How long will people continue to pay twice the price for an earth grown product that has the exact same appearance and function as the lab grown version? Will the price gap continue to widen? There will probably always be those that prefer to purchase earth-grown diamonds, but the masses of people that are interested in exploring lab created diamonds is exploding right now! I can’t wait to see what happens to the industry over the next 10 years! I’m guessing that earth grown diamonds will still be selling, but they’ll lose significant market share to laboratory diamonds that are more environmentally friendly, socially responsible, and economically feasible for many consumers.
Related Questions:
Why are Some Diamonds More Expensive Than Others?
The cost of diamonds varies based on 4 main factors (color, cut, clarity, and carat weight). Diamonds that have vivid coloring (especially natural coloring), for example, cost more because they’re more uncommon. Larger diamonds, and those with very few inclusions, also cost more for the same reason.
Are Diamonds Bad or Unethical?
Diamonds come through many channels, and they aren’t all immoral or unethical. Canadian diamonds, for example, are free of human suffering, but do have an environmental impact. Lab created diamonds provide the beauty and durability of a mined diamond, without such severe potential social and environmental impact.
Why are Diamonds Valuable to Scientists?
Diamonds are helpful to scientists when cutting really hard things. They’re incredibly hard and can be used to cut things that we have difficulty cutting (especially with precision) in any other way. They can also be used to manipulate visual light, which can be useful in various machines and computing.
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The Resale Value of Lab Created Diamonds | How to Get More $
