Diamonds are always associated with being a luxury and precious asset. Be it a love proposal, engagement, or wedding, we always expect diamond rings, necklaces or earrings to be part of our joy and celebration. But have you ever wondered why diamonds are expensive in the first place even though they are originally found in abundance in nature? I think we should find out.
It’s True! Diamonds are not Scarce as Gold, Silver
Like me, many of us do not know that a diamond is not as scarce as gold and silver. High-quality Diamond gem diamonds are rare but diamonds in general are more abundant in nature. Every year Gold is mined for about 3000 metric tons and a total of 208,874 metric tonnes are already mined. The remaining estimate for Gold reserves is only 53,000 metric tonnes as per the US Geological Survey, 2023.
While Silver has an annual production of around 25,000 metric tons. and a total of approximately 1.74 million metric tons has already been mined in its entire history. The remaining silver reserves are estimated to be around 5,30,000 metric tons.
Which is a difference of 22,000 metric tons.
At the time of writing this article if I check the prices of Gold and Silver in the international market it as follows
Gold – $2387.95 per Troy Ounce
Silver – $27.91 per Troy Ounce
(1 Troy Ounce = 31.103 gms)
There is already a huge difference in pricing that matches with the supply and demand concept.
But now let’s look at Diamond. Unlike Gold and Silver, Diamond is not measured in metric tonnes instead it is measured in carat. (1 metric ton = 5 billion carats). Each year diamond production takes around 110 – 150 million carats per year. And the total number of mined diamonds is nearly 5 billion. The remaining diamond reserves are estimated to be still around 5 – 7 billion carats.
So If we compare
Gold is currently at 79% of its total estimated reserves
While Silver is at 77% of its total estimated reserves
And Diamond is at approximately 40 – 50% of its total estimated reserves.
As per the supply and demand theory, this should have kept the price of Diamond lower to a good extent.
Diamonds are Geographically Concentrated in the Distribution
Diamonds are found in larger, more concentrated deposits across the globe. Thus this helps in the extraction of larger quantities easier making the overall process more profitable for even a single mining site. While gold is typically found in smaller concentrations, requires significant processing, and is economically challenging to mine in large quantities.
Thus widespread distribution of yellow metal makes the gold even more precious compared to the diamond.
Unlike Gold and Silver, diamond mining is limited to countries such as Russia, Botswana, Canada, Angola, South Africa, the Democratic Republic of Congo, and Namibia, etc. And it wouldn’t be incorrect to say that few big players control the entire supply of diamonds around the world.
Key Players such as ALROSA (in Russia), De Beers Group (South African British Corporation), Rio Tinto, etc come together under an association that was formerly known as Diamond Producers Association (DPA) but recently got rebranded to Natural Diamond Council (NDC) to avoid confusion related to Lab-grown diamonds.
Outstanding Marketing of Diamonds multi folds its Global Demand
As we understood Scarcity wasn’t the case for gem diamonds at least not to the extent of Gold and Silver but this was not the case from the start. Initially diamond was very limited in the world because it was not mined to the extent of today. It was valued as a precious metal and limited to the elite around the world.
In 1866, when the Diamond was discovered in South Africa, it led to large-scale mining and later Big Players like De Beers Group formed and entered the market. They faced several challenges related to price discovery and unstable demands. Still, things were about to change forever when De Beers launched its most famous marketing campaign “A Diamond is Forever” which connects Diamonds with love, relationships, and commitments. This campaign proved to be highly successful and increased the demand for diamonds in various occasions like proposals, engagements, wedding etc.
Later after this several other campaigns, extensive advertisements ranging from Television ads to Radio Ads, and roadside Banners kept pushing its reach across the globe and even till now. Celebrity endorsement elevated consumer demand even further.
The main idea of these campaigns was to foster a feeling of elite, luxury and bring an artificial scarcity of diamonds among consumers. And honestly, they are successful at it.
NDC regulates Supply and Distribution Heavily
Although the demand has risen significantly over the centuries, it is important to maintain a strategic model that helps in maintaining the diamond prices as well as to make sure that it increases over time. Natural Diamond Council take necessary precautions and action based on global cues. They can reduce the supply by reducing the mining capacities as well as Increase whenever needed.
Along with this NDC is also taking care of promotion, education and maintain a sense of sustainability among locals.
So Finally..
Why Diamonds are Expensive?
Even though Diamonds are in abundance compared to Gold and Silver, high-quality diamonds are usually rare in nature. Secondly, the Natural Diamond Council led by Dominated Players like ALROSA, and De Beers regulate heavily the supply and distribution of Diamonds which keeps the price high enough to be called Expensive.
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