Have you ever wondered about the business of diamonds, where they come from, and how they’re priced?
If you’ve ever bought a diamond, you know that the value can vary greatly based on the four Cs: Carat, Clarity, Color, and Cut. The 4 Cs are important. But there’s already a ton of info on the web about this.
In this article, I discuss a topic that isn’t covered often because the jewelry industry wants to keep it on the down-low. The topic is – how prices of diamonds can vary greatly based on where you buy them.
Diamond pricing is based on 2 factors
Did you know diamond prices are a commodity with supply tightly controlled? As a commodity, relative value is easily measurable based on the quality of the diamond. But the price the consumer pays is only partially correlated with quality.
The other important factor that determines price is from where the diamond was purchased.
A customer will pay the highest relative price for a diamond at a retail jewelry store or department store. Buyers who are able to purchase from sellers closest to the diamond source (the diamond mines) will get the best pricing.
The Diamond Supply Hierarchy
What do I mean, “from where” diamonds are purchased? Let me rewind for a moment to give you a high-level view of where diamonds come from.
There are a limited number of commercially available diamond mines operating in the world, with the 50 largest mines accounting for approximately 90% of global supply. The 10 largest mines in the world are in Russia, Botswana, Australia, and South Africa with Russia being home to half of the world’s biggest diamond mines.
De Beers (the “Diamonds are Forever” co) controls most of the diamond mines with their exclusive mining rights. In the 80s, they controlled 90% of diamonds in the world. Over time, this number has decreased but they are still on top of the diamond supply food chain.
Next on the diamond food chain are the 5 or 6 companies for each mine who are authorized to buy rough diamonds directly from them. There are approximately 200 companies in the world authorized to buy rough diamonds direct from the mining companies.
The mining company sells a parcel of rough diamonds to these few companies, who in turn sends the diamonds to their cutting facilities to cut and polish the diamonds. After this process, the diamonds are sold to distributors. Are you following? Cuz it can be confusing.
Higher the supplier is on the food chain = better pricing for customers
Buyers of diamonds who purchase in large quantities have the most buying power. The larger dealers will get the best prices, and then everything trickles down to the smaller dealers & retailers with each level adding their desired profit to the price tag. Each diamond dealer obtains their position in the chain based on how much diamond inventory they can afford to purchase at one time.
The price consumers pay will vary by how far down the food chain their retailer sits. If you’re buying from a jewelry store, you’ll be paying the highest price for the diamond after all the markups assessed by each wholesaler on the diamond distribution food chain.
How do you pay less for a diamond? Buy from a diamond dealer higher up in the distribution channel. In my opinion, there is no reason to purchase a center stone of 1 carat or more from a retail store when you can get the exact same diamond for thousands less by obtaining the diamond from a seller closer to the diamond source. The trick is to know how to find these suppliers who can offer lower pricing.
The large online diamond companies have relationships with distributors who are higher up on the distribution channel than brick and mortar retailers. With these relationships, they have access to lower costs on the diamonds.
In addition, the online companies don’t own any of the diamonds they offer on their sites until they find a customer to purchase the diamond. Their business model is efficient and appropriate for a commodity like diamonds where value is easily measurable.
Ounce of Salt’s Diamond Connections
I have the connection to the first point of distribution from the cutting facilities. With diamond access from the first point on the distribution channel and also not having to physically own the inventory of diamonds available, I’m able to offer the LOWEST price on ANY diamond. Even lower than those largest online diamond sites I mentioned earlier! We have GIA, EGL and uncertified diamonds available. Some general rules of thumb on diamonds:
- I recommend a GIA certified diamond for an engagement ring greater than 1 carat.
- For earrings or a pendant over 1 carat, EGL is sufficient.
- For any diamond over 1 carat, I recommend at least an EGL certificate for the stone to retain value for future trade-in/sales.
Conclusion on diamond prices
The bottom line: A diamond’s value is based on its quality (the 4Cs). But the same diamond can be priced at significantly varying levels depending on where you purchase it. Be smart. Purchase from a trusted source who has access to higher-up suppliers in the distribution channel.
If you’ve ever thought about purchasing diamond studs or a piece of jewelry, it’s a great time to make your wishlist! Buy diamonds with peace of mind! Because you deserve to sparkle from the inside out!