What’s the Price of Diamonds Determined By..? Who Controls the Trade?
What’s the price of diamonds determined by who? Who really controls the diamond trade? Does the diamond cartel price their products according to the demands of the buyer or their own?
How did a simple carbon byproduct get to be one of the most luxurious and expensive items this side of the world? In this article, we’re going to reveal the secrets of luxury pricing for “In-demand” diamonds products.
When Did the High Demand for Diamonds Start?
Demand for diamonds began in 1800 when wealthy European women started wearing them as an accessory to formal social gatherings. Once diamonds were discovered in South Africa, Cecil Rhodes bought a piece of property from two brothers, Diederik and Johannes de Beer. The De Beers Consolidation was formed soon after and it’s driving strategy from the very start was: To control the world’s source and supply of diamonds.
All the effort in controlling the trade goes to Ernest Oppenheimer who became the chairman of the cartel after buying a majority share of the company. The De Beers cartel controls 90% of the world supply.
Control of the Diamond Trade and the price of diamonds
The de Beer Consolidation were keen to gain control both the mining (i.e, the source of diamonds) and the diamond trade (i.e., the supply mechanism) from the very start and for two very important reasons:
1) When you have control of the source, you can manage supply with greater certainty – removing, in turn, any unpredictability created by competition.
2) when you can manage supply, you can stimulate demand and re-set price parameters.
The only factor the de Beer family couldn’t control at this point, however, was human behaviour. People didn’t really know about diamonds at this point in time. They didn’t want them and weren’t willing to pay a high price for them because they didn’t value them.
De Beer Consolidation were quick to realise that the number 1 thing holding their business back from becoming a multi-billion dollar industry was marketing. So this is what they did…
Law of Supply and Demand do not Apply in the price of Diamonds
They saw that the economic law of supply and demand did not apply to diamonds, so they created one of the best illusions of all time: They created a B2C marketing strategy based on fundamental pricing and human principles to stimulate pretty much overnight demand for diamonds:
Firstly, they perpetuated the illusion that diamonds were rare. They understood that people valued things were rare – so the de Beer Consolidation positioned diamonds as a scarce commodity while maintaining a tight control of the release of de Beer diamonds into the public domain.
Secondly, they heavily marketed diamonds as the ultimate symbol of love to the mass market: They had well-to-do women from the middle and upper classes showcase their diamonds at special events to signal to man that diamonds were indeed a girls best friend..
Within no time at all, the word spread that diamonds were popular with the ladies. Pretty soon diamonds became a necessity for engagements and commemorative affairs like 60th anniversaries.
The combination of scarcity, love, sex and glamour was an instant hit with the masses. Demand for diamonds grew overnight.
On the B2B side of the business, however, things were much more real and cutthroat. De Beers pricing strategy uses a “take-it-or-leave-it” approach. They asserted their control of diamonds of the wholesale market. Their customers had to pretty much accept the De Beers’ terms of a fixed price or else they would leave with nothing.
Wholesalers of fine goods didn’t want to leave negotiation with no de Beer diamonds though. They could see and feel the buzz around de Beer marketing campaign. They wanted a piece of the growing pie and acquiescence to de Beers terms.
Today, the de Beers pricing strategy is changing somewhat: It is reshaping its pricing strategy to concentrate on stimulating demand rather than controlling the diamond market. Currently, there’s isn’t any universal pricing for diamonds as such. Unlike gold, for instance, diamonds do not have an official benchmark or standard.
No Official Benchmark in the price of diamonds
The problem with no official benchmark for diamonds is there there are too many unknowns in the diamond product: Its production, trading and finance are all vague and hard to audit. Any one of these factors can cause significant fluctuations in the final invoice price.
Another problem for de Beer has been the UN Kimberley Process. A process that stemmed the flow of conflict diamonds from war-torn African nations. An above-board pricing strategy would legitimize the trade and would mean disaster for the illegal traders. And better profits for the diamond producers that in the past are getting the raw end of the deal.
To manage these uncertainties, the diamond trade regularly cites a universal set of standards. However, the gem laboratories created these standards to determine the price of the diamond – not an official and impartial regulatory body. Regardless, these standards are essential to diamond trade and pricing to this day. Without them, there are no parameters on value – diamonds would be just pieces of glass.
You probably already know what these diamonds standards are: The first standard in diamond trading and pricing is the 4Cs. These are Carat, Colour, Clarity and Cut.
The Four C’s in Diamond Pricing
The standards used to set retail diamond prices. The standard is based on a grading system. Diamonds are graded and then priced based on their quality. Quality is determined using the following criterion:
- Carat – the weight of the diamond. How big it depends on its weight.
- Colour – not all diamonds are the same. A diamond colour’s graded from D-Z. With D as the highest price. They can range from colourless to brown or yellow. Ambient light, clothes colour, time of day or even the mood of the assessor can have an influence on its grade. Specialised laboratories can accurately grade the colour.
Other measurements such as unique colour like pink, blue or other vibrant colours are graded from Faint to vivid. Single colour diamonds are more pricier.
- Clarity – any imperfections in the diamond can affect its price. The highly-priced ones are any absence of imperfection. These graded from FL (flawless) or IF (Internally flawless) to VVSs (very very small inclusions). Then there is VVSs and VSs (very small inclusions) and between SIs (small inclusions) and Is (inclusions).
- Cut Grade – refers to how the diamond was cut to its final shape, whether round, square or unique like heart, pear, or oval. The five grades ranges from excellent to poor. The influencing factors are:
- how the light refracts
- its brilliance of the light reflected
- the scattering of the light simulating a prism effect
- the sparkles it emits when moved around
A Fifth Standard in the price of diamonds
Another fifth standard is the comments of the inspector of the diamond. Sometimes it does not influence the price of the diamond but for some it is essential.
The inspector provides a formal description of some the imperfections they detect in the diamond. This assessment also impact the final price. If the inspector sees an internal graining effect in the diamond, which forms a cloud or fluorescent effect inside the diamond, the price of the diamond goes down significantly. Most laypeople, however, would not know how to detect these imperfections.
Are the price of diamonds cheaper in the US?
Generally speaking, it depends on where you are located. If you are from England or Australia where the exchange rate is higher than in the US, then it is cheaper. The price difference is mainly based on distribution and production costs: i.e., like shipping costs, wire transfer fees, insurance and the customs fee. With these additional fees and costs, people in Australia could end up paying more than just the price – and significantly more for the same diamond than someone in the US.
Since the US has the biggest diamond market in the world, you can have a much wider selection. So shopping for diamonds in the US is better. Just be ready to know what you want and a budget.
Unlike gold or silver, diamond prices do not depend on any of the country’s economy. Additionally, it is not a wise investment. Very few diamonds are of investment-grade. The others lose their value when mined. It retains its state forever due to its hardest known substance. The appearance of diamonds – their elegance and beauty – is what maintains their value now.
Lab-grown diamonds are here to stay
Due to the high prices of mined diamonds, lab-grown diamonds have entered the highly competitive diamond market. De Beers company has backtracked from its statement a few years ago that it will never sell lab-grown diamonds. They are now using a Lightbox pricing strategy by selling Lab-grown diamonds at $800 per carat. Since the average price of similar diamonds is around $3,700 – $4,200 per carat and mined stone for around $6,000.
The marketing trends indicate that the lab-grown diamonds are here to stay:
- Increasing presence of digital technologies
- Growing preference for Lab-grown diamonds
- The younger generations of consumers look for the biggest diamond at the lowest diamond price.
What is the diamond market price per carat?
For the uninitiated, a carat is the diamond’s weight. One carat is equal to 0.2 grams. Depending on the 4C’s of diamond assessment, a one-carat diamond is more expensive than a .99 carat. Therefore, any round number carat has a bigger price than its fractional counterpart.
- The demand for diamonds was initially by an De Beer ad campaign over two hundred years ago. It essentially made diamonds a necessity for people committing to a relationship; and diamonds the chosen symbol of love. Anything less was just second best.
- Certain organisations have significant influence over the diamond trade and pricing. Their influence and say so sets the price parameters for diamond trade and re-sell value globally.
- Lab-grown diamonds are overtaking natural diamonds now: Lab-grown are the preferred choice for price-sensitive, young buyers – who value the size of a diamond over its quality more than any generation prior.
- Stifling the so-called short supply of diamond by the diamond cartel is a way to bring up the price. This is to ensure that the price of the diamond is justified for its rarity and elegance.
- The pricing strategy of diamonds is based on the 4Cs of diamond grading. The cartel doesn’t want to use any other grading system. They fear it loses its value to the customers.
- Unlike gold, diamond prices have no benchmark for comparison. Therefore, diamond pricing do not depend on the economy of any country. The diamond cartel dictates the price.
Like any luxury item, it is best to do extensive research on finding the right diamond for the right price. Don’t rely just on experts, use your instincts.
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