A customer contacted us recently and asked why a two-carat diamond is much more than twice the price of a one carat diamond of the same color, cut and clarity characteristics. He used the rationale that two ounces of gold is exactly twice the price of one ounce of gold, so why isn’t a two-carat diamond simply twice as expensive as one carat.
To answer the question, we need to understand the economics of diamonds – get this right and you will be well on your way to understanding if you are getting value for dollar on your diamond purchase. Diamond prices are based on two and only two factors: quality and rarity. This is where gold and diamonds start to differ.
First, when gold comes out of the earth it does not come in a 1-ounce bar of 24 karat pure gold. When it is mined it generally has impurities in it – rock, dirt, other metal, etc. It often does not even look like “gold” to the untrained eye. Likewise, when diamonds are mined, they don’t emerge looking like the gem that sits atop an engagement ring. They too don’t look like diamond to the untrained eye. It isn’t until they go through a cutting and polishing process that they become what the buyer wants.
So, on the face it makes sense, both come out of the earth, both are transformed by man into something rare and beautiful and both are used in jewelry. So why don’t they have a similar pricing behavior?
The answer is rarity
When a diamond “rock” comes out of the earth, it could be any size, but most of the time mother nature makes them really small. The larger the uncut stone the less of them there are. More importantly, even if the diamond rock is large, it still needs to be shaped correctly to be cut into a large diamond. If the uncut diamond is one inch long and one inch wide, but only ¼ inch thick (like a skipping stone) then the cutter cannot craft a big diamond. He/she must cut it into smaller stones so that the proportions are correct on each gem.
Unlike gold, you can’t melt a diamond
Gold melts at 1064 degrees C (1948 degrees F). While that is certainly hot, it is easily achievable utilizing some very common technology that has been around for hundreds of years.
Diamonds don’t melt, they burn. At about 800 degrees C a diamond will burn. If all oxygen is removed from the process, then theoretically a diamond could melt at about 5000 degrees C, but that is about the temperature of the surface of the sun and can’t be replicated here on earth.
What does this mean?
In a word, a gold smelter can take tiny pieces of gold and combine them into a larger bar with relative ease. But the same is not true of a diamond. The diamond cutter gets what he gets.
Similarly, lower quality gold can become higher quality gold simply by putting it through the smeltering process, but lower quality diamonds (lower quality color and clarity characteristics) that exist in an uncut diamond can’t be improved through any process (absent artificial processes that are usually temporary and actually make a diamond less valuable). The single “C” that can be control is cut, and not coincidentally, it is the “C” that gives the best value per dollar spent. This is because mother nature does not determine the quality of this single characteristic, the diamond cutter does, and he gets paid to get it right.
James Allen Examples
James Allen is our top recommended online retailer at Jewelers.NYC and we often use them to cite price examples because they are one of the most competitively priced diamond stores online (about 40% off retail +/-) and have thousands of diamonds graded by the Gemological Institute of America (GIA).
Look at these price comparisons. Assume the base diamond is a Round 1 Carat, G Color, Very Good Cut, VS1 Clarity stone. If you click the links below you will see the price differentials which nicely highlights the difference when changing the variables of color, cut, clarity and carat weight against the base. It’s important to note: these are actual prices for diamonds for sale right now on JamesAllen.com so this is not theory it’s reality!
How to observe the differential…
When you click on the links below, you will be taken to the James Allen diamond pricing page. The search is predefined for you so all you need to do is observe the prices (and play with the 3-D feature if you’d like). Usually multiple diamonds will be listed. We recommend looking at both the highest and lowest price in each category so that you can understand the price range of a nicely priced diamond. This will also be useful later when you want to go buy a diamond because James Allen prices are hard to beat.
Price increase based on change in size
Notice that the two carat is more than triple the price of the 1 carat diamond because two carat stones are more rare in nature than one carat stones.
Price increase based on change in color
Note the price difference for a one grade improvement in color.
Price increase based on change in clarity
Note the price difference for a one grade improvement in clarity
Price increase based on change in cut
Note the price difference for a one grade improvement in cut
The bottom line is this: like many precious objects, diamond prices are based on rarity. Uncut stones that yield a two-carat diamond are rarer than those that yield a one carat (three carats is rarer still – and so on). The same is true with the other C’s with the most cost efficient (and the one that has the biggest impact on beauty) being cut. All other things being equal go for the best cut you can afford first.