Buying Diamonds

Buying diamonds can be a bit daunting for the uninitiated, and there can be a lot of murky waters to navigate in this area. Caveat emptor.

While it is true that diamonds have a fair market value based on normal supply and demand factors, you must realize that the flow is from one direction only. That is, a diamond has one price when you are buying and quite another when you are selling. That's because there is a well-defined and tight-knit line of supply from the mines, through the wholesalers (basically DeBeers, who controls supplies tightly and many say, artificially), to the dealers, to the jewelers, and ultimately to the consumers. Everyone along the way has to make a profit, which is understandable. But if you try to put a diamond back into the system, that is to say, to sell it back, you are in a different pipeline. This is basically the pawn market which notariously discounts true market value. So the ugly truth is that diamonds have a much lower value on the resale side than they do on the purchase side. It's like anything else that you try to sell once it has been used, except that the price drop is more than one would expect since a diamond doesn't wear out. It's normal. It's reality. You just should be aware of the facts.

Note: An exception to this general rule about diamond resale values is when the gem is "investment grade". These are stones that have stable values or even growth potential because of their rarity, size, or other special features, like special color. But for the normal range of stones available to consumers (as opposed to collectors), this exception does not apply.

So now that you know one of the industry's dirty little secrets, does that mean you shouldn't buy a diamond? No, it doesn't mean that at all. You can still feel good about getting a diamond, but you should be aware of what you're doing.

Obviously you're not going to be thinking about resale values when you buy a diamond for your wedding ring, and this is what the industry counts on. What you need to keep in mind when considering a diamond purchase is that all the small details that are being hyped as making a diamond more valuable (i.e., more expensive), such as clarity and cut, etc., are not going to have a lot of currency in a gem's resale value (unless it is in the "investment grade" class).

It's easy to get caught up in these details, which in the long run make not count for a lot. What I advise my clients to do is optimize the price/quality relationship, or "bang for the buck". You can end up with a less expensive gem that is as beautiful or moreso than stone with a higher technical grade. Contact me to discuss how to do this.