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  • Gabriela Dávila

Why are diamonds that expensive? Are they a good investment?

Until the 19th century, diamonds were exceedingly rare stones. However, this changed when a large deposit was discovered in South Africa in the city of Kimberley.

Initially, the De Beers Group, a trading company engaged in the mining, cutting, and trading of diamonds, had power over 90% of the global diamond industry during the 19th century. They were almost holding a monopoly. Then, after the deposit in Kimberly was discovered, it turned diamonds into one of the most popular mined gemstones, according to the International Gem Society.

To prevent the value of diamonds from declining, De Beers and other mining companies came together to release only smaller batches of diamonds. To achieve this, they released only exceedingly small quantities of diamonds to the market, just enough to satisfy the demand. As if that were not enough to make diamonds such an iconic and sought-after gem, the De Beers also started creating huge publicity for diamonds: “A diamond is forever” became the slogan of their company. Diamonds were also frequently portrayed for years on TV during the 40s and 50s. This started the famous tradition of the wedding ring with a diamond on it, associating "eternal love" with the diamond.

However, why are diamonds still expensive today? Is it because of the diamond raw material itself? The short answer is no. Although diamonds are known as the hardest stones, they discolour, chip, and some diamonds break. Moreover, although some might argue that the unaffordable prices have to do with the mining and processing involved, this is not the reason either.

The margin prices, or profit margins, of selling diamonds are outrageous. The Atlantic reported that the margin could be as high as between 100% and 200%, with brands like Tiffany & Co. selling diamonds at a marketed price of between 253% and 336% higher.

In Sierra Leone, small groups of miners work to extract fluvial deposits in delimited areas near a river. There, they excavate the gravel, transport it, and wash and sift it. The price that miners receive for the merchandise that intermediaries buy from them is exceptionally low, compared to what it reaches in international markets. In the end, between traders and intermediaries, the wealth generated by these stones never stays in the communities in which they are produced, which remain mired in poverty and neglect. But still, most artisanal mining is conducted informally. These conditions benefit many of the people at the highest echelons of the diamond supply chain.

And here you have the last reason not to buy a diamond: it is not a sound investment! When you buy a diamond, the price immediately depreciates 50% of its value at that time. On average, a person can only get 20% to 40% of what they originally paid for the stone. The reason for this drop in value is the way the diamond industry is organized so that sellers can offer them to you at a high price, but they buy them at their real value when you want to resell them back, so, next time, think twice when you buy a diamond.