What Factors Determine Diamond Prices?

Author: Ian Maher

If you have been shopping for diamond jewelry, you have probably noticed that jewelry such as engagement rings, eternity rings, diamond necklaces and earrings are on the market for a wide range of prices. In fact, the difference from one diamond ring to the next can easily be several thousand dollars. For most consumers, price is an important factor in a buying decision, so it is important to understand what you are paying for when you purchase a brilliant piece of diamond jewelry.

As with many consumer products, diamond prices paid by end users are affected by the value that is added at each level of the supply chain. Diamonds are mined from the earth in what can be expensive, elaborate mining operations, incurring an initial cost. Of course, diamonds do not emerge from the earth in the beautifully polished cuts commonly seen at jewelry retailers. After being mined, diamonds are typically cut and polished before being sent to an independent laboratory for grading. Then diamonds are placed on the market for purchase by wholesalers or diamond dealers, who in turn sell them to various retailers. Finally, diamonds are in retail stores and ready for purchase by consumers. Each stage of the supply chain adds some kind of value and incurs markup, each of which are reflected in the end price a consumer will pay for a diamond.

The cost to mine, prepare and market a diamond is not the only determinant of the end price of a piece of diamond jewelry. Also included, of course, is the complete cost from mining to market of metals and other gemstones that make up a piece of jewelry, as well as crafting of the piece itself. Diamonds are appraised and valued individually based on evaluation of the four Cs—carat, cut, clarity and color.

The price of a diamond is calculated based on some determined value per carat. That is to say that the value of a 0.5 carat diamond which is valued at $3,000 per carat would be calculated as $3,000×0.5 = $1,500. However, despite the apparent simplicity of the (price per carat x carat weight = diamond price) equation, several factors influence the determined per carat value of an individual diamond. Evaluation of a diamond’s color, clarity, and cut contribute to the determination of its per carat value, with diamonds exhibiting the most attractive combination of features being considered the most valuable and thus the most costly., the carat weight for an individual diamond is also affected by its rarity. Since a one carat diamond is much rarer than a half-carat diamond, a one carat diamond will incur a higher per carat weight than an otherwise equivalent half-carat diamond. Though tempting, it is inaccurate to assume that you can simply plug the carat weight into an equation to determine the value of a diamond. Each diamond must be individually appraised in order for a value determination to be made.

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