Investing in diamonds used to be seen as a safe and profitable endeavor, largely due to the monopoly control of supply by the De Beers cartel. However, in recent years diamond prices have become much more volatile. Several factors have contributed to this volatility: the weakening of the De Beers cartel, increased production of synthetic diamonds, shifting consumer preferences away from diamonds in some markets, and the difficulty of reselling diamonds on the secondary market. While diamonds remain coveted as jewelry and engagement rings, their future as a speculative investment is uncertain. Investors should carefully analyze diamond investment risks such as illiquidity and lack of transparency before allocating significant capital.
De Beers cartel historically controlled diamond supply and pricing
For much of the 20th century, the De Beers cartel had a virtual monopoly on the global supply of diamonds. By restricting supply and running clever marketing campaigns linking diamonds with romance and commitment, De Beers was able to keep diamond prices high and stable for decades. Many investors saw diamonds as a safe haven, similar to gold. However, in recent decades De Beers’ control of the market has declined significantly, from around 80% of supply in the 1980s down to around 30% today. With less ability to manipulate global supply, De Beers can no longer prop up diamond prices in the face of weak demand.
Increased supply of synthetic diamonds
Advances in technology have enabled the mass production of synthetic diamonds in laboratories at increasingly low costs. Initially seen as inferior to mined diamonds, the quality of synthetic diamonds has improved to the point where they can rival the beauty of natural stones. While still accounting for a small share of the overall market, the availability of cheap synthetic diamonds represents a potential threat to the scarcity and value of natural diamonds.
Shifting consumer preferences
In Western markets, younger generations seem less interested in diamonds as a symbol of commitment and romance. Experiences are valued more highly than physical possessions by many millennials. Meanwhile, consumer awareness of issues like conflict diamonds may have dented the ethical appeal of diamonds. As views around gender roles and relationships evolve, the cultural traditions linking diamonds with marriage and engagements may weaken.
Resale value and liquidity challenges
Diamonds are not a fungible commodity with established resale markets like stocks or precious metals. Selling even certified high quality diamonds often involves accepting large discounts from initial purchase prices. The lack of liquidity and transparency around diamond pricing makes it difficult for investors to value and sell diamonds at optimal prices. Large bid-ask spreads, dealer markups and high transaction costs erode investor returns.
The investment case for diamonds has weakened considerably. Falling De Beers influence, synthetic diamond competition and shifting consumer attitudes may continue to displace diamonds’ status as a safe haven asset. While still beloved as jewelry, diamonds’ future as a speculative investment is looking increasingly cloudy.