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Why Are Diamonds So Expensive? Part 1

Often featured in opulent displays of power and wealth, diamonds are thought to be among the rarest of gemstones. In fact, the opposite is true. Diamonds are not particularly rare. When compared to other gemstones, they are among the most common to be found.

But how could this be? If diamonds are so common, why are they considered so valuable?

Image of Star of South Africa from the Web

Star of South Africa

Before the late 1800s, diamonds were considerably more rare than they are today. Often worn by royalty and noblemen as symbols of status, they were only found in a few riverbeds in India and in the jungles of Brazil. Then in 1871, an 83-carat rough diamond was found on a farm in South Africa. This led to the discovery of one of the largest diamond deposits at the time, and the subsequent European takeover of Africa.

The mines established during this time produced an influx of diamonds into the market. It’s important to note how the value of a diamond depends heavily on scarcity and perceived rarity. The increased supply of diamonds in combination with public distaste for the wars fought in Africa led to a steady drop in demand. Around this time, diamonds were considered a semiprecious stone comparable to turquoise or topaz.

This drop in the value of diamonds created a depression that put several mines at risk of shutting down. This created an opportunity for Cecil Rhodes to buy up several diamond mines that were undervalued. In 1888, Rhodes launched De Beers Consolidated Mines with funding from N.M. Rothschild & Sons.

By 1902, over 90% of the world's diamond production came from mines under De Beers’ control. With sole control over the diamond supply, De Beers was able to artificially limit the supply by stockpiling the diamonds their mines produced. This increased the perceived rarity of diamonds in the eyes of the public, driving up the demand.

Notoriously, De Beers set up individual subsidiaries made to look like separate companies operating independently. These companies, known today as shell corporations (illegal in most countries), allowed De Beers to influence the market to set one fixed price for diamonds with minimal fluctuation between the different subsidiaries, giving the illusion that the market set the price naturally.

Photo for Cecil Rhoades from the Internet

Cecil Rhoades


In an article written for The Atlantic, author Edward Jay Epstien stated:

De Beers proved to be the most successful cartel arrangement in the annals of modern commerce.

In recent years, De Beers has forfeited monopolistic control of the diamond market, having their market share of rough diamonds fall from as high as 90% in the late ‘80s to 29.5% in 2019. In 2013, they paid out a settlement of 295 million dollars to consumers for allegations of price-fixing and other antitrust violations.

De Beers’ long standing control of the world’s supply of diamonds was only part of how they managed to influence the market. Despite their decreasing market share, their cunning marketing campaigns have echoed through culture and continue to impact the public perception of diamonds. In an upcoming blog post, we’re taking a hard look at how decades of aggressive and strategic advertising shaped the way we think of diamonds today. Sign up for our Newsletter to make sure you don’t miss out on the rest of the story...

Article by Xavier Messado

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