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Are diamonds unnecessarily expensive?

Are diamonds unnecessarily expensive?

You've probably heard that there's an oversupply of diamonds in the world, and that diamonds are not actually rare. You may have also heard that there is a conglomerate of diamond companies artificially holding up the price of diamonds. Is it true? Well let's take a look ...

Humans have been wearing diamonds since at least 4000 years ago. In fact, up until the 1800s, diamonds were actually extremely rare. There are examples of kings, emperors, and priests from various cultures who wore large and expensive diamonds conspicuously to show their power and standing. In fact, the word "diamond" itself comes from a Greek word that means "indestructible", indicating that diamonds were known and respected for their power during the times of the Greeks. Diamonds have been mined since at least 500 BCE in India, and India was the primary source of diamonds worldwide for almost 2000 years.

Golconda diamond mines from 1725, early diamond mines

Diamond mine in the Golconda region (Pieter van der Aa, 1725 CE). Source: Wikimedia commons

Then, in the 1800s, people started finding diamonds near a riverbed in South Africa. These diamonds, unlike many of the diamonds of the past, were easily found because they were "alluvial" (or came from the river). There was a great abundance of diamonds in this river and on its banks. This is the river Vaal, and it is there that organized diamond mining really began.

A view of the Kimberley Diamond Mine in South Africa, taken from a booklet entitled, “A Short Sketch of the African Diamond Mines,” published in 1881 by Alfred H. Smith & Company in New York.

A view of the Kimberley Diamond Mine in South Africa, taken from a booklet entitled, “A Short Sketch of the African Diamond Mines,” published in 1881 by Alfred H. Smith & Company in New York.

At first, the mines were very unsophisticated and it was a terribly dangerous business. The mines would collapse into one another and the soft earth in the walls of the pits would fall and bury the workers inside. The miners would often strike too deep, hitting underground rivers, and multiple mines would collapse as a result.

Over time, however, the art of mining diamonds improved, and entrepreneurs from around the world took notice of the great opportunity and profits to be made. Cecil Rhodes, an Englishman, began to supply water pumps to miners in exchange for a portion of the mines' profits. Also, Barney Barnatto purchased stakes in the various small-scale mines and received portions of their profits. Eventually Cecil Rhodes bought out Barney Barnatto (for $26 million which was a huge fortune at the time), and created a small monopoly over the mines for himself. He named his company "De Beer Consolidated Mines Limited", after the original South African family who owned the land the mines were being developed upon.

De Beers Share warrants from late 1800s

A document showing share warrents for the early De Beers company in 1902. Source: Wikimedia Commons

Throughout the rest of the 1800s through the 1970s, De Beers corporation controlled the majority of the diamond trade. In order to hold diamonds at a particular price, De Beers did a few things. First, they stockpiled billions of dollars worth of rough diamonds at a warehouse in London. Meanwhile, they marketed brilliantly in various campaigns between the 1930s and 1960s the concept that "A Diamond is Forever", that a true engagement ring should contain a diamond at its heart, and that men should invest three months' salary into an engagement ring. The marketing was incredibly effective, and is considered to be the impetus for Marilyn Monroe's song "Diamonds are a Girl's Best Friend" in 1953. Not surprisingly, diamond sales reached an all time high in the decade following the song's release in the film "Gentlemen Prefer Blondes" - which happens to be all about diamond mining in Africa!

Diamonds are a girls best friend with Marily Monroe

Screenshot from the Gentlemen Prefer Blondes Trailer with Marilyn Monroe. Source: Wikipedia

Until the 1980s, De Beers controlled 75-85% of the diamond market, but their monopoly began to wane soon after. Thanks to satellite technology, new diamond resources were discovered in places like Australia, Canada, and Russia. New companies and smaller scale mining began to enter the market. Of course, these companies were happy to sell diamonds at the prices set by De Beers, but ultimately did erode De Beers' influence in the market.

In 2000, under market and legal pressure, De Beers agreed to stop stockpiling their diamonds. In 2004, De Beers admitted to price fixing in US Federal courts, and this admittance of guilt allowed them to begin to sell diamonds in the US. Previously, De Beers was not allowed to sell in the US due to their illegal stockpiling activity in the UK. As more diamond deposits are continually found, and old mines are slowly closing, De Beers is losing market share.

Today, De Beers accounts for 30-40% of the diamond trade, and that amount is continually decreasing, especially due to the newest development - man-made diamonds which further erode the pricing of diamonds. De Beers is held up to intense international standards, and their mines are overseen by international bodies that require them to pay a living wage to their workers, to be run in a safe manner, to make sure that chemicals are not seeping into nearby groundwater, and to reclaim the mines properly when they close, among other things. De Beers is no longer the monopolist, and many in the market would like all of us to believe this narrative that by defeating the evil De Beers, the problem of price fixing is now over and the diamond trade is now a safe, healthy, positive influence on the world.

Obviously, this is not 100% true, as with any type of mining - it's not healthy for the earth, and it isn't always done properly. De Beers became a scapegoat, and the problems of price fixing do continue. But let's look a little deeper at actual pricing and what defines it.

Diamond is not only not rare, but, in fact, the most abundant mineral on earth. Diamond is carbon, placed under the immense pressure that the earth exerts upon itself. Up until the last couple of centuries, humans didn't have the technology to mine deeply enough to extract diamonds. However, today we have that capability and new and deeper diamond deposits will continue to be found.

While diamonds are abundant, the mining is not a simple process. It's expensive, most large scale, dangerous, and can be in some of the most distant and harsh geographies in the world. There is a heavy cost of extraction.

Also, not all diamonds are created equal. If you look on our site, you'll see that there is a range in quality of diamonds, which corresponds to price. In fact, most diamonds are industrial quality, and can only be used when ground into powder. These diamonds are often less than $10 per carat. But, there are also diamonds that are incredibly clear, large, and have a beautiful white coloring to them. These high quality diamonds ARE actually rare, and their value exceeds beyond thousands of dollars per carat.

In addition to the innate value and mining cost of the diamond, there is also another factor that should be considered: bringing them to market! Photography, websites, marketing, running businesses, hiring workers, paying for shipping, etc. these are all expenses that go into selling diamonds. At The Raw Stone, we try to purchase from as close to the mines as possible in order to pay the largest amount of money possible to the miners directly, rather than to middlemen. We think that, ok, people love diamonds - so do we - so let's let the people who labor the hardest receive some benefit from this thing that people really love.

At the end of the day, if you want a diamond - and really, diamonds ARE amazing and beautiful, and many of them are actually rare - then that's awesome, and through us, you have an opportunity to buy a diamond that comes from as close to the mines as possible, that was created with no slave labor, no child labor, that had international bodies monitoring the environmental impact of the mines, and that was handled by workers who were paid a fair wage. We are not one of the big diamond conglomerates - OBVIOUSLY!! - we're a small business doing our best to improve the jewelry industry for the better.

And of course, if you have questions about anything, you can contact us directly and we will do our best to help you: info@therawstone.com

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