Diamonds were not always so popular with the American public, and they were not always so pricey. A diamond placed in a mounting on a ring has a markup of about 100 percent to 200 percent. The only reason why we pay so much more for diamonds today than for other precious gems is because the diamond market is controlled almost entirely by a single diamond cartel, called De Beers Consolidated Mines, Ltd., which is based in South Africa.
De Beers stockpiles diamonds mined from countries around the world and releases a limited number of diamonds for sale each year. De Beers produces half of the world's diamond's supply and controls about two-thirds of the entire world market, according to a Washington Post report. At times, just to keep prices up, De Beers has bought tremendous numbers of diamonds from countries attempting to inject large quantities into the market. If De Beers were a U.S.-based company, it would be in violation of antitrust laws for fixing the prices of diamonds.
The secret to De Beers' success is a marketing campaign that convinces women that they should receive a diamond ring from their fiancee and convinces young men to pay "two-months salary" for that ring to show how much their love is worth.
Prior to the 1930s, diamond rings were rarely given as engagement rings. Opals, rubies, sapphires and turquoise were deemed much more exotic gems to give as tokens of one's love, according to the book "Twenty Ads that Shook the World," by James B. Twitchell. Twitchell goes on to describe how De Beers changed the world diamond market. This idea of connecting diamonds to romance was captured in a brilliant ad campaign begun in the 1940s, causing demand for diamonds to increase. Surely you've heard the De Beers advertisement telling you that "A Diamond is Forever." This ad campaign, which was created by the N.W. Ayer advertising agency in 1947, changed the diamond market. In 2000, Advertising Age magazine named the ad campaign the slogan of the 20th century. De Beers infiltrated Japan with the same ad campaign in the 1960s, and the Japanese public bought into the idea as much as the Americans did.
Later ads by De Beers told consumers to hold onto their family's diamond jewelry and to cherish them as heirlooms -- and it worked. This eliminated the aftermarket for diamonds, which further enabled De Beers to control the market. Without people selling their diamonds back to jewelers or to other people, the demand for new diamonds increased.
There are fewer than 200 people or companies authorized to buy rough diamonds from De Beers. These people are called sightholders, and they purchase the diamonds through the Central Selling Organization (CSO), a subsidiary of De Beers that markets about 70 percent to 80 percent of the world's diamonds. De Beers sells a parcel of rough diamonds to a sightholder, who in turn sends the diamonds to cutting facilities and then to distributors.
There are rough diamonds sold outside the CSO. These diamonds come from small producers in Australia, Russia and some African countries. The cost of these diamonds is still largely influenced by the prices set by the CSO.
Diamonds are the most coveted of all precious gems, as is witnessed by the extremely high demand for them. While this has not always been the case, diamonds are nonetheless exquisite gems that go through a long, tedious refining process from the time they are pulled from the ground to when you see them in the jewelry store. And, while some of the mystique of diamonds may be gone -- they're just carbon, after all -- the diamond will likely continue to be a highly coveted jewel.
Aside from diamond being nothing more than worthless compressed carbon, it is possible that if the manufacturing of industrial diamonds rises significantly (if for example, they are found to help increase computer speed), natural diamonds could lose all value as nothing more than a passing fad! If you want to invest in something that will hold its value forever, invest in gold, which has held its value as a highly precious metal as long as its been known to man.