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Why Diamonds Cost So Much: Factors Affecting Price

written by: William Springer•edited by: John Garger•updated: 5/19/2011

You would think that having decided on the size of a diamond to buy, the hard part is over...and you would be wrong! While size is the biggest factor in determining a diamond's price, other factors such as cut, color, and clarity play important roles as well.

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    Why are diamonds so expensive? There are two main reasons. First, they're popular - an awful lot of money has been spent convincing us that a big diamond engagement ring is a sign of love and they actually are nice to look at. Second, they're rare; there are only so many diamonds being mined each year and the company that controls most of them artificially limits how many are released to keep prices high.

    Additionally, not only do diamond rings tend to stay within families, diamonds have many industrial uses as well. As a result, there's a steady demand for newly mined diamonds. Diamond prices vary wildly from under $100 to millions of dollars depending on the rarity. Larger diamonds are rarer, of course, but colorless and very clear diamonds are harder to find as well. Many factors, not just size, contribute to a diamond's cost.

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    Average Cost of a 1 Carat Diamond Suppose you want to buy a one carat diamond, which would fit on a reasonably flashy engagement ring. What's the average cost? You can just Google for one carat diamonds to find out how much you can expect to pay, right? Well...not so fast. Let's look at the three big factors - cut, color, and clarity - that affect a diamond's cost. As with all products, demand affects price. Since diamonds and all jewelry experience increased demand around the holidays, you can expect to pay more for diamonds during all holiday seasons.

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    The cut of a diamond is not the same as its shape. You can choose any shape that appeals to you without giving up quality. A well-cut diamond does a better job of reflecting light to meet the viewer's eye, which means that it will have more sparkle than a diamond with a lesser quality cut. Obtaining a better cut requires cleaving off more of the original crystal, which means that a diamond with more sparkle costs more for the same weight than one with a lesser cut.

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    A perfect diamond has absolutely no color; it is perfectly transparent. In reality, however, almost all diamonds have chemical impurities that give the diamond some color. White and yellow diamonds tend to be cheaper while blue, pink, and red diamonds are more expensive. A diamond's color is graded on a scale of D-Z, where D through F are colorless and G through J are nearly colorless. Other scales are used for diamonds that have colors other than light yellow or brown. In practice, anything J or above will be effectively colorless to the naked eye. Colorless diamonds sparkle the most, making them highly desirable.

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    Similarly, most diamonds are not perfectly clear; they contain small (or not so small) internal flaws. For many people, a small flaw is not a negative factor since it makes the diamond identifiable. Diamond clarity is listed as F (flawless), IF (internally flawless - no internal flaws, but some surface flaws), VVSI 1 and 2 (very, very slightly included), VS1 and 2 (very slightly included), SI1 and 2 (slightly included), and I 1-3 (included). In general, diamonds rated SI or better (which includes most of what you'll find at the jewelry store) are essentially flawless to the naked eye (the I rating means that it has problems you can see without magnification). In practice any diamond that is VS or better will appear perfect to the casual observer, and powerful magnification is necessary to distinguish between VS1 and VVS2 diamonds.

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    Choosing a Diamond

    So, which elements are most important? It mostly comes down to a matter of taste. When I bought my wife's engagement ring, I knew what she wanted (a certain shape and ring color) and I knew what I wanted (a diamond that was colorless and clear to the naked eye). I let my budget determine the rest. In the end, I chose a near-colorless, VS1 diamond that has no visible imperfections. There is a huge variety available; be sure to know what you're looking for.

    Image Credit: Wikimedia Commons