The Diamond Market
Diamonds have long been considered a store of value. Their inherent beauty and rarity has ensured their status as perhaps the ultimate luxury good. Diamonds destined for jewellery form the dominant source of revenue for a mine. Although on average 50% of diamonds mined are sold for industrial purposes they are of comparatively low value. Recently rough and polished diamonds are becoming an investment in their own right.
Diamonds are valued differently from other commodities. The reason for this is that diamonds are relatively unique, each one is different. As a result most diamonds sold at a retail level has an accompanying certificate which is prepared by an independent professional that examines and describes the particular characteristics of the stone. These professionals are affiliated with bodies such as the Gemological Institute of America (GIA) and International Gemological Institute (IGI).
The value of a diamond is a function of the “4 C’s”: carat, color, clarity and cut.
All else being equal larger diamonds are worth more per carat than smaller ones.
The color of a diamond can have a significant impact on value. White diamonds are typically the preferred color with off white and brown diamonds being worth less. In certain conditions diamonds can also occur in other colors. These colors are very rare, and the prices of these stones reflect this rarity. Diamonds can be yellow, pink, red, purple, blue and green.
Clarity is also an important factor for value. Diamonds with no internal flaws such as inclusions, blemishes or cracks are more valuable than those stones with flaws.
Finally cut is also important. The orientation of a polished diamond’s facets contributes to the brilliance of the stone. The more precise the facets the more brilliant the stone and the higher the stone value. In addition diamonds can be cut and polished into a number of different shapes ranging from brilliant (round) to heart shaped to pear shaped to oval to princess (square).
Contrary to popular belief De Beers no longer controls the diamond market. In the mid 1980’s De Beers controlled roughly 90% of global diamond production and was able to influence the diamond market. Since that time De Beers has had a steadily decreasing share of the diamond industry. At the current time De Beers controls less than 40% of global diamond production and has relinquished its role of the largest producer of diamonds to Alrosa, which owns several Russian diamond mines. Though the company is publically listed it is majority owned by the Russian government.
Future Price Outlook
The future price trend for diamonds looks very bright. Industry experts Bain and Company have evaluated future mine production, economic and demographic trends and predict that from 2018 onwards demand will outstrip supply. This imbalance will result in an increase in the price of diamonds.