Gems, especially diamonds, used to be considered a stable investment with steady returns. However, in recent years, the supply of gems from new producers and lab-grown gems has increased significantly, leading to great volatility in prices and diminished returns on investment. The appeal of gems rests heavily on their scarcity, but that scarcity is diminishing. De Beers, which once controlled 80% of diamond supply, now only accounts for a third. Meanwhile, the supply of lab-created gems, which are identical to natural ones, is accelerating. As supply outpaces demand, gem prices are falling dramatically. For consumers looking to purchase gems for personal use, this fall in prices is good news. But for those considering investing in gems, the vanishing scarcity and uncertain future returns make them far less attractive.
De Beers’ monopoly over gem supply facilitated steady price growth for over a century, but has weakened considerably
For over 100 years, the De Beers cartel maintained dominant control over global gem production and supply. By stockpiling gems, De Beers created artificial scarcity in the market. The company also restricted speculative trading of gems. This market structure enabled steady increases in gem prices over the decades. However, since the 1980s, De Beers’ market share has fallen from 80% to around 33% today in the face of increasing competition. Key competitors like the Russian company Alrosa have eroded De Beers’ dominance. The loss of monopoly control over supply has led to recent price volatility.
Lab-created gems now make up 10% of market share, accelerating the decline in natural gem value
Gems created in laboratories by applying intense heat and pressure to carbon have been available since the 1980s. But until recently, these lab-grown gems constituted less than 5% of the overall gem market. In the past few years, improved technology and techniques have caused the supply of manufactured gems to accelerate rapidly. Currently, about 10% of gems sold are lab-created, almost indistinguishable from natural gems. However, manufactured gems sell for just 20-30% the cost of comparable natural stones. As increasing volumes of cheap, lab-grown gems enter circulation, they place strong downward pressure on the value and price of all gems.
Attempts to differentiate natural from artificial gems may further reduce scarcity and investment viability
In response to the lab-created gem boom, the De Beers cartel has tried to boost demand for natural gems by relaunching its iconic “A Diamond is Forever” ad campaign. The company also sells artificial gems at huge discounts to demonstrate their inferiority. However, such moves may further erode perceptions of gems as scarce and valuable. When consumers realize they can purchase gems with the same visual qualities at far lower prices, the prestige and status of natural gems declines across the board. Furthermore, the discounting of artificial gems pulls prices down rapidly rather than shoring them up. If current trends continue, even natural gems may end up as cheap commodities rather than prestige investments.
In summary, the viability of investing in gems has diminished considerably compared to past decades when steady returns were the norm under De Beers’ supply control. With increased competition from lower-priced lab-grown gems and loss of monopoly power, the formerly scarce commodity of gems now faces a future of uncertain value and unstable prices. For those considering investing in alternative assets, gems no longer sparkle as they once did.