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I've heard quite often that the only reason diamonds have the high value they have is because the price is set by a single worldwide diamond mining monopoly. That, if actual quantity versus demand is taken into account, diamonds are intrinsically worthless -- and therefore have quite little resale value.

How much of this is true? And who actually runs/owns this supposed monopoly? Is this likely to affect diamond prices if I am interested in purchasing?

Fattie
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Weckar E.
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    I think this question narrowly falls into the on-topic zone of personal finance related economic questions. The implicit question here is whether the value of diamonds could plummet in the future to affect buying decisions today. It's not an academic discussion if you are considering buying diamonds. – NL - Apologize to Monica May 17 '17 at 13:50
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    Value is singular, not plural. Reverting the title change. – Weckar E. May 17 '17 at 18:31
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    They aren't worthless per se, just worth much less than the market value. – Christopher King May 17 '17 at 18:54
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    Natural diamonds are pretty rare, especially the flawless ones, so they are intrinsically definitely not worthless, though price manipulation could certainly inflate it. – RomanSt May 17 '17 at 23:12
  • I once heard that in order to boost diamond sales there was conspiracy that all Hollywood movies should show wedding rings with diamonds, so that it became the de facto standard to buy a wedding ring with a diamond. Don't know if it is true. – willeM_ Van Onsem May 18 '17 at 17:55
  • Someone suggested in a flag that this should be moved to skeptics.se. I don't think it should be moved as (in my opinion) after the edit it's on-topic for here, but I think there's scope for asking a question over there just about whether the monopoly exists. – GS - Apologise to Monica May 19 '17 at 05:39
  • A personal-finance question that follows from this is "If diamonds are not actually worth much, should I pay for an insurance rider on diamond jewelry?" I am not sure it's worth asking such a question when the first half is a debatable question in and of itself. – stannius May 19 '17 at 16:31
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    @GaneshSittampalam migration sucks. people like to bash questions for very crappy reasons whatsoever. The ontopicness of the question might even be borderline in here, but NathanL nailed it. Question value is measured by the quality of the answers it entails, and the community has already voted on this one. – Mindwin Remember Monica May 19 '17 at 23:59
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    the "price" of anything is just "based on" "what people will pay". "value" is meaningless, it is a moral term. – Fattie Nov 04 '17 at 17:49
  • This is one of the best articles I've read on the subject (and if I get it right - it's from 1982!): https://www.theatlantic.com/magazine/archive/1982/02/have-you-ever-tried-to-sell-a-diamond/304575/ No need to summarize it here - it says what others already told in their comments. The situation with diamonds reminds me of the riddle I read many many years ago in some book. It said, that a man got some priceless ancient vase. After looking at it for a while, man crushed it into pieces at the floor... and at the same time he's become much, much richer. – sinnerinc Nov 04 '17 at 15:41

3 Answers3

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Yes, the De Beers Group of Companies is a diamond cartel that had complete control of the diamond market for most of the 20th century. They still control a sizable portion of the market and their effort at marketing (particularly with the slogan "A Diamond is Forever") has done much to inflate the market for diamonds in our society.

The intrinsic value of diamonds is much lower than the market prices currently reflect, but with the caveat that there is a rarity factor which does drive up the price of larger diamonds.

The larger the diamond, the more likely it is to have flaws, so when it comes to diamonds that are 5 carats or greater, you are not as likely to see a new supply of diamonds disrupt the prices of those larger stones.

Some other ways that high end jewelers and suppliers are differentiating themselves is by patenting a specific cut that they design. This is another barrier to entry that works to create some artificial price inflation. One common example is the Lucida cut sometimes referred to as the Tiffany cut.

Diamonds can also be manufactured. The same carbon structure can be grown in a lab. These stones have the same carbon structure as natural diamonds but without the flaws and visible impurities. Most manufactured diamonds are used industrially, but processes have improved sufficiently to allow for gemstone quality synthetic diamonds. They sell at a decent discount, so that might be an option to consider if you want a substitute. In the years to come, you can expect prices for synthetic diamonds to continue to decrease which will probably put some further downward pressure on jewelers' prices.

NL - Apologize to Monica
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    Interesting fact about man-made diamonds. So they are cheaper and better than natural ones? What prevents their price from rising? You can't tell them apart with the naked eye, can you? – xiaomy May 17 '17 at 14:27
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    @xiaomy I think it's safe to say the average person cannot tell the difference with the naked eye if there is no reference to compare, but when you look at a 3 carat synthetic diamond next to a 3 carat natural diamond side by side, you might be able to spot the synthetic one with the naked eye. – NL - Apologize to Monica May 17 '17 at 14:39
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    @xiaomy the real answer is marketing. A synthetic diamond is chemically equal to a natural diamond, has less flaws, but is not a natural diamond, therefore the very monopoly that inflates the value of their stones push down the price of the synthetic ones. – Mindwin Remember Monica May 17 '17 at 16:25
  • @Mindwin That makes a lot of sense. I suppose for an informed and rational buyer, it would then be a rather easy choice between natural and synthetic diamonds. – xiaomy May 17 '17 at 17:10
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    @xiaomy Have you ever tried to sell a diamond? - The Atlantic 1982 – Mindwin Remember Monica May 17 '17 at 17:15
  • @xiaomy most people buy diamonds for sentimental reasons. Whether or not natural diamonds better fulfill those reasons is up for debate. – Christopher King May 17 '17 at 18:46
  • DeBeers has about 30-40% of the production/purchasing market. Their influence has greatly diminished over the last 20+ years. – Hart CO May 17 '17 at 20:28
  • @HartCO the decision of Australia certainly reduced their influence, but given the regulations in place from the UN, there are still barriers to entry for new players, and De Beers is still the largest player with outsize influence despite the loss of outright control. – NL - Apologize to Monica May 17 '17 at 20:37
  • There's very little barrier to entry for purchasing diamonds and while there is for production, production is declining greatly, either way, big difference over the last 20 years, they're not really a cartel anymore, and they can't influence prices very much. – Hart CO May 17 '17 at 20:46
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    @HartCO OPEC is responsible for 40% of oil production, are you suggesting 40% isn't enough market share to influence prices significantly? – NL - Apologize to Monica May 17 '17 at 20:51
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    @NathanL I'm definitely saying that, we've seen great examples of this in the oil and gas industry over the last decade+, they have a decent amount of very short-term influence, quite limited long-term influence. – Hart CO May 17 '17 at 21:00
  • I don't disagree about long-term influence, but short-term influence is the whole point. – NL - Apologize to Monica May 17 '17 at 21:02
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    I'd disagree there, what happens when OPEC cuts production? Other producers ramp up production. Prices come back down, and OPEC has even less short-term influence than it had previously. When talking about controlling a market and inflating prices, short-term is almost meaningless. DeBeers had great control of prices when they controlled 90% of the market, but currently the market is mostly controlling prices. – Hart CO May 17 '17 at 21:11
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    Let us continue this discussion in chat. – NL - Apologize to Monica May 17 '17 at 21:15
  • You should mention the big "Diamonds are Forever" marketing campaigns De Beers ran, which resulted in people's desire for diamonds on wedding rings, etc. Prior to that, it wasn't uncommon to have other precious gemstones in place of diamonds. – SnakeDoc May 18 '17 at 15:05
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    @xiaomy Even 15-20 years ago, synthetic gems were of quality that experienced jewelers could not tell them apart reliably. One story I came across while researching the topic was a journalist presenting synthetic stones to a dealer, and asking him if he could tell that they were synthetic. The only thing the dealer could come up with was that they were "too perfect". The situation was bad enough that DeBeers spent a significant amount of money developing machines that could detect the trace residues from the synthesizing process, and gave them to jewelers for free. – Rozwel May 18 '17 at 20:03
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    @Mindwin that article is 35 years old! While it's definitely an interesting read, I am not sure it tells us that much about the current state of the diamond business. – stannius May 19 '17 at 16:20
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    You might want to mention the very successful De Beers advertising campaign that established the "proper" price of an engagement ring at x months salary. Three is what I recall for X. That did not per se establish a price for given diamonds but it created a market of young men willing to go into debt to purchase very expensive rings in order to propagate their DNA. – Spehro Pefhany May 19 '17 at 16:28
  • @stannius from the other answers, anything at all. Hooray for stagnation – Mindwin Remember Monica May 19 '17 at 23:56
  • its amazing how the DeBeers page on the 'A Diamond is Forever' campaign shows it as an acheivement, when it is a carefully orchestrated brainwashing! – user1995 May 21 '17 at 06:24
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    Probably also worth mentioning Moissanite here; to the lay person visually indistinguishable from diamond, although there are little electric testers that jewellers and pawnbrokers use to verify diamonds vs moissanite. Excellent option if you just want a shiny thing, rather than a wearable Veblen good. – pjc50 May 21 '17 at 10:15
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diamonds are intrinsically worthless -- and therefore have quite little resale value

It may be true that De Beers has a near monopoly on diamond supply, but they are still a scarce resource, so their supply is still very limited. They do have resale value - that's one reason why diamond jewelry is stolen so often. There's just not a huge secondary market for diamonds that I know of (unlike cars, for example). You can sell diamond jewelry at pawn shops or online brokers, but you probably only get a fraction of their retail value.

They are not intrinsically worthless. They do have value in the industrial sector as powerful cutters, although synthetic diamonds are much more prevalent in this market. Their value in industry is much lower than their worth as jewelry.

Think about gold - it does not have a monopolic supplier but it still has a relatively very high value.

D Stanley
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    The high resale value can easily be explained for the same reason they are so expensive to begin with. If you just bought a diamond for $1000, your not going to sell it for $20 because that's its actual value (as an example price here), especially if most people believe its worth $1000. Its value as jewelry is arbitrary. Outside of industrial uses, its just a hard (scientific definition) and pretty rock. Unlike Carbon, Gold is truly scarce, and we cant make gold (for a profit anyway), but we can compress carbon into those synthetic diamonds – Ryan May 17 '17 at 15:57
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    @ryan what? Reselling a diamond is a exercise in frustration management for a private individual. – Mindwin Remember Monica May 17 '17 at 16:37
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    @Ryan: OTOH, if you have a diamond that you paid $1000 for, and desperately need money so you'll take the best price you can get, that price is not likely to be more than $100 or so. This is unlike gold, where the purchase & selling prices of a gold coin on any given day are going to differ by only a small amount. – jamesqf May 17 '17 at 16:54
  • An AGS-certified AGS 0 (that is, an extremely well-cut) round diamond purchased from a reputable on-line diamond retailer is likely to be readily resalable for 75 - 80 percent of its on-line retail price. www.pricescope.com has a free price-finding service that looks at the inventory of several very reputable on-line diamond retailers. It also has a forum that answers many common (and not-so-common) questions about diamonds. – Jasper May 17 '17 at 19:51
  • @jamesqf You are seriously reading into my comment too far. People in desperate circumstances will happily sell gold for less than its worth just to sell it sooner. The situation is a major factor in that case. A diamond the store would sell for $1000 is a $1000 diamond in anyone's hands. If its not, then that is proof diamonds are scams (doesn't matter what I sell it for). Regardless of the truth of that, If someone else wants that diamond and knows the store would sell it for $1000, then me naming any price under $1000 is saving them money. – Ryan May 17 '17 at 20:35
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    @Ryan: There seems to be plenty of real-world experience that says that's not so. – jamesqf May 18 '17 at 03:53
  • I think a big reason why gold resells easier/better than diamonds is that gold can be melted down and recast with relative ease. A diamond can be cut smaller but it's not as if a jeweler can melt down 3 tiny diamonds to make a new bigger diamond. Gold also only has 1C whereas a diamond has 4Cs by which the buyer of a pre-owned diamond can haggle down the price. This makes diamonds extremely differentialable whereas gold is just a commodity. – Dean MacGregor May 18 '17 at 19:35
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    Based on a research paper I did many years ago, I would challenge the assertion that diamonds are a "scarce resource". I would have to go digging to find sources again, but the data point I recall places it scarcity on par with that of quartz. The perceived scarcity was artificially imposed by DeBeers through marketing, strict regulation of production, stock piling, and highly controlled releases of the gem stones. – Rozwel May 18 '17 at 19:56
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    "It may be true that De Beers has a near monopoly on diamond supply" You mean had. At the moment, according to Wikipedia, they currently only control about a third of the world market. – David Richerby May 18 '17 at 21:23
  • @Mindwin do you have a newer source than this article from 1982? – Paŭlo Ebermann May 20 '17 at 22:10
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De Beers is the company most cited as the near monopoly. They used to own a massive chunk of the diamond supply and intentionally restricted that supply to increase the price. In recent decades, new sources of diamonds have reduced the De Beers' singular grip. They still have a large share though.

Video about this from Adam Ruins Everything: https://www.youtube.com/watch?v=N5kWu1ifBGU

it turns out this ancient tradition [of giving diamonds rings for engagements] was invented less than a century ago by the De Beers Diamond Corporation... in 1938, the De Beers Diamond cartel launched a massive ad campaign, claiming that the only way for a real man to show his love is with an expensive hunk of crystallized carbon, and we bought that shit.

It continues

The only reason diamonds are even expensive is that De Beers has a global monopoly on diamond mining and they artificially restrict the supply, to jack the prices up.

Because of this artificial supply restriction, the resale value of diamonds are quite low.

NL - Apologize to Monica
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Lan
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  • Thanks for the concern and valid points @JoeTaxpayer. The text above the link is my answer and the video is more-so a citation. As you suggest, I'll put the text citation in my answer. – Lan May 17 '17 at 13:34
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    How does supply restriction make the resale value low? – Hart CO May 17 '17 at 14:51
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    "And we bought it" - and eighty years later, we're still pawns to advertising... – corsiKa May 17 '17 at 15:28
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    @corsiKa the second (best and effective) marketing campaign in the world. The first place goes to the Coca-Cola Santa. – Mindwin Remember Monica May 17 '17 at 16:33
  • @HartCO secondhand luxury goods have terrible resale value because they are secondhand. Same principle goes for cars and jewelry. – Mindwin Remember Monica May 17 '17 at 16:34
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    @Mindwin The first place goes to carrots, courtesy of the RAF during WWII. – Brian May 17 '17 at 16:38
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    @Mindwin This answer states that supply restriction causes the resale to be low, I was asking why they think that is the case, because it goes against basic supply/demand concepts. – Hart CO May 17 '17 at 16:43
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    @HartCO The "new Diamond" market is supply constrained and heavily advertised. Because diamonds don't break and many millions of people get diamonds a year and die, the "used Diamond" market is large and does not have a singular entity manipulating supply. I'd personally say a used diamond is fungible with a new diamond but the general populace disagrees with me. – Lan May 17 '17 at 16:51
  • @Lan The general populace tends to not understand basic economics at any level. This is useful at times and disastrous at others. – corsiKa May 17 '17 at 17:07
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    That doesn't make sense, jewelers don't just buy freshly mined diamonds, it's not a separate used/new market. I don't think there's any support for your claim that supply restriction causes poor resale value. – Hart CO May 17 '17 at 17:07
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    @Brian Too localized eh? I only heard the carrot thing as an old wive's tale as a kid. Contrast that with dressing Santa in the colors of your company and the worldwide permeability christmas has. Carrots may get third IMO. – Mindwin Remember Monica May 17 '17 at 17:18
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    @Mindwin It's a happy coincidence that Santa wears Coke colors. He was wearing red before the Coke started putting the ads out. – corsiKa May 17 '17 at 20:15
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    @Mindwin I'm not familiar with the Coca-Cola Santa campaign, so I can't really even put it in the top 10. I guess I live under a rock? – Brian May 17 '17 at 22:33
  • +1 for the discussion on the DeBeers ad campaign in the 30s. That, and the intentional reduction in supply is the real reason, IMO. – grfrazee May 18 '17 at 14:06
  • @Brian - Have you heard of Santa? Then you've heard of the Coke Santa campaign. Basically, St. Nicolaus used to be an old saint that some catholics liked. And there were some European christmas stories that involved him giving out gifts. The Coke came along and said, "You know that St. Nick guy? Let's make him fat, and put him in Coke colors. Then we'll have him ride a magic sleigh and live in the north pole. And the best part? He loves drinking COKE!" Now, we have Santa Claus, not just St. Nick. – EvSunWoodard May 18 '17 at 16:22
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    @EvSunWoodard Coke has stated that the whole "Coke was the genesis of some Santa traditions" is bunk. Elements and parts of Santa did gain their popularity due Coke advertising but they won't the autographs. http://www.coca-colacompany.com/stories/did-coke-create & http://www.snopes.com/holidays/christmas/santa/cocacola.asp – Lan May 18 '17 at 16:57
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    @Lan See this 15 March 1874 advertisement for "solitaire diamond engagement rings" in Schoolday Magazine https://books.google.com/books?id=IaJCAQAAMAAJ&pg=PA84-IA2&dq=diamond+%22engagement+rings%22&hl=en&sa=X&ved=0ahUKEwjky8K3jPrTAhUKr1QKHWNkCWgQ6AEISzAI#v=onepage&q=diamond%20%22engagement%20rings%22&f=false Plenty of references from 1860 onward about diamond engagement (betrothal) rings. – DavePhD May 18 '17 at 18:55
  • @HartCO You're correct that a supply restriction doesn't imply that resale value would be low. I'm not highly researched on diamonds but a hypothesis would be that De Beers and others have a vertically integrated cartel that punishes the purchase of used diamonds such that individuals looking to sell them can't find good buyers. – Dean MacGregor May 18 '17 at 19:41
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    As you say, De Beers no longer has anything like a monopoly on the world diamond supply. That rather reduces the credibility of the video you cite, which claims that they still have this monopoly. Even the most cursory of research by the videomaker would have revealed that De Beers doesn't have a monopoly any more. – David Richerby May 18 '17 at 21:28