How Does the Market Price Diamonds?

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Diamonds vs. Commodities

When considering the market price of diamonds, it is important to realize that a diamond is not a commodity. In economic terms, a commodity is an item whose price will remain consistent for all examples across the market. (For example, the price of gold will fluctuate over time, but all gold will have the same value at a given time. Gold is therefore a commodity.) Diamonds, on the other hand, are items that will have varying values and prices depending on their individual characteristics. These characteristics can include size, color, clarity and fashion (the cut of the diamond). This means that determining the value of an individual diamond is similar to determining the value of, say, a collectible or electronic item.

Not So Rare

The reason diamonds are not a commodity is that they are not, contrary to popular belief, particularly rare. However, the mining, cutting and sale of diamonds is closely controlled by just a few key sellers and has been since the late 1800s. Chief among these owners is the De Beers company.

Creating Demand

The fact that diamonds are considered a highly valuable item in the U.S. is chiefly due to successful marketing strategies that created (and continues to sustain) demand for the gems. This campaign was launched by the De Beers company in the early- to mid-20th century. This campaign is responsible for the cultural tradition of giving diamond rings as engagement gifts and for the association of diamond jewelry with courtship, luxury and permanence (the slogan "a diamond is forever" was specifically designed to discourage the reselling of the gems). The value of diamonds from day to day and year to year is therefore dependent upon the continued perception of diamonds as a valuable item.

Keeping Track Of Pricing

The most accurate way to keep track of the current price of diamonds is to consult the Rapaport Diamond Report. This is a subscription service that tracks the weekly pricing of the gems based on their weight, clarity and color. Clearer, larger diamonds are generally worth more. Color is based on a scale of yellow to white, with whiter diamonds fetching a higher price. For diamonds that have already been cut, there is a different set of guidelines based on their shape and the current demand for that shape. In that case, pricing is based on the popularity of certain shapes and their availability.