There is no question in my mind. Diamond prices are high. Gold and platinum are less expensive than diamonds. Much more. Why then are diamonds so costly? I’m aware that many blogs claim that big bad De Beers and jewelers that mark up diamonds by 200 percent are behind the whole thing. I’m sorry to break it to you, but none of those statements is accurate.
A beautiful diamond costs $5000 per carat. The price per ounce is $777,587. They are among the top five most expensive materials on earth, although antimatter, which costs about $500 million per carat, is more expensive.
Less than 50% of diamonds are being mined by De Beers, and the company has no influence on diamond prices. Additionally, the retail markup on diamonds nowadays is often between 5 and 10 percent rather than 200 percent.
1. Diamond mining is expensive.
The rarity of diamonds. One London double-decker bus may hold all the gem-quality diamonds ever extracted. Many jewelers have never even physically observed a D Flawless diamond.
Only 53 locations on earth have enough diamonds to support industrial mining. The most recent one was found 20 years ago. For this reason, mining firms are prepared to spend millions of dollars establishing mines in absurdly remote locations such as beneath a lake in the Canadian tundra, in the middle of a Botswanan desert, or off the coast of Namibia.
These are incredibly expensive to run because all the personnel need to be flown in and provided with housing and food. Many mines only last ten or two years (before it becomes too expensive to go deeper.) Around the world, there is a comprehensive list of mines whose operations are no longer profitable.
A single carat of diamond must be sifted through around 250 tons of rock, even in the most productive diamond mines. Additionally, the majority of the diamonds that are mined globally are of insufficient grade to be utilized in jewelry.
2. Low Diamond Rough Yield
You’ve got it made once you shift tons and tons of rock and discover that glittering one-carat rough diamond, right? Wrong. The yield for diamond rough is typically in the range of 30%. A one-carat polished stone can be cut using a one-carat raw diamond.
The yield varies according to the type of rough, including makeable rough, which will be polished into a single stone, sawable rough, which will be sawn in half before polishing, near gem or cleavage rough, which must be cut into two or more pieces before polishing, and last (and least), industrial grade diamond rough, which will be used to make tools or ground into powder. When divided into two princess cuts, rare octahedral crystals can yield as much as 70% of their total value (which is why that shape is more affordable than round brilliant diamonds.) However, the majority of the yearly carat production of gem-quality diamonds gets polished away as dust.
3. Inventory Financing Increases the Price of Diamonds
Massive sums of money are required by miners to construct mines. For their cutting factories to remain operational, cutters need millions of dollars to purchase rough. To make jewelry, jewelers need to purchase gold and diamonds. Additionally, stores need to have merchandise in cases waiting to be purchased (and often require the vendor to provide these goods on consignment.) The diamond pipeline has many steps, each requiring a significant investment. Additionally, banks aren’t lined up to lend money to the diamond industry since they lack the expertise to assess the security. The sector is experiencing a severe difficulty with financing, which is getting more expensive daily. Naturally, this applies to all industries. However, compared to other industries, the cost of raw materials is higher in the diamond sector. It’s comparable to getting a mortgage every week. The interest accumulates.
4. Cutting and Sorting Are Hard
Sorting and assessing each piece of rough requires significant expertise because diamond rough is so expensive and yields can be so minimal. Experts must carefully assess each lot of rough to determine its potential.
To get the maximum value out of every piece of rough, the cutters must make choices. Should you cut a single, sizable round that uses more raw but sells for more money per carat? Two less expensive but less-rough pears that are smaller in size? What will yield the highest profit? Even today, when tools like the Sarin enable accurate measurements and three-dimensional visualization, these computations are challenging.
Once a choice has been decided, the rough could then be preformed, polished, and then cut with lasers. Since nothing else would cut a diamond, this calls for the use of diamond powder. Cutters make mistakes; occasionally, things don’t go as planned, and a pricey rough diamond breaks or cracks. These professionals work on each diamond for hours (or, in the case of larger jewels, weeks). That raises the price.
5. Price Is Determined by Grade
The GIA must now grade that expensively financed diamond stock. That raises the price of a one-carat diamond by $120 and requires additional weeks of financing. But more significantly, the value of your diamond is determined by that grading report. Even if you spent more on the financing, the rough, the sorting, and the cutting, you are still in competition with everyone else who has a diamond graded exceptional cut, VS2 clarity, and G color.
Diamond industry experts can communicate precisely about diamond quality thanks to grades. However, they also intensify the fierce competition in the industry. Today, diamonds are marked up relatively little by both merchants and dealers. Diamonds are moving more quickly over the world and there is less markup in the system than ever before.