There are many myths about diamonds, specifically with engagement rings which we are sure you would have heard about… “you must spend 1/2/3 months’ salary on an engagement ring” and “you have to have a diamond in your engagement ring” which are great examples (find more here).
A question that our customers often ask us is: “are diamonds a good investment?”, and, like the others, it’s rooted in a myth.
Diamonds, of any type or origin, are not an investment – unless you’ve got the means to purchase a huge or fabulously coloured diamond. That’s literally the only circumstance under which you could sell a diamond for more than you paid for it. Sorry about that!
We will be looking at why the resale value of diamond jewellery is usually a lot less than the purchase price, as well as breaking down the differences between mined and lab-grown diamonds. We will also examine the Ethica Diamond as part of this conversation, but we will do that in a minute.
VALUE vs PRICE
The key thing to remember, throughout this whole conversation, is that the value of a piece of jewellery is often wildly different to its price. Your engagement ring has a high value for you, because of what it signifies – the lasting love between you and your partner, that promise of forever. If you get engaged with a gorgeous ring that you bought at a craft fair for £50, that ring is worth more to you than a custom-designed, 6 carat, fancy pink diamond solitaire that cost hundreds of thousands of pounds.
Another factor to bear in mind while reading this article is that the cost of an item of jewellery is more than the cost of the gemstones and metal included in it. If you approach a jeweller such as Ethica and ask for a bespoke design, then the cost of that item will include the gemstones and the metal, but also the skill and time of the designer. Broken down to its constituent parts, the gems-plus-metal add up to less than the cost of the jewellery as a whole, and certainly don’t reflect the effort and skill that went into creating it. Fine jewellery, designed to your specifications, is a desirable item, and the cost reflects that. You would expect to pay more for a one-off architect-designed house with high-quality fixtures than one of the same general specifications built from a pattern-book, and the same applies here.
So, let’s examine the resale price of different types of diamond, with this bigger picture in mind.
MINED DIAMONDS – PRICING
Mined diamonds are priced according to the 4 Cs which are Clarity, Colour, Carat and Cut. The diamond industry determines this according to the Rapaport pricing method, or Rap Report, which gives a price per carat for different clarity and colour. For example, a diamond that is nearer to pure white will have a higher per-carat price than one that is slightly creamy, and a diamond that has few internal flaws (known as inclusions) will be more expensive than one that has more or bigger inclusions.
This price-per-carat is a high price, however, and will be adjusted according to a variety of other factors – Cut being the primary one. A diamond that is cut less well, or in a less popular style, will be lower in price than one that has a pristine cut, of a popular style like ‘hearts and arrows’.
This is called an ‘ideal cut’. It is the premier cut, and highly sought-after due to the huge amount of internal refraction it generates (‘sparkle’, basically), and because not every diamond can actually be cut into this style due to its difficulty. Other factors that negatively influence the cost will be the presence of fluorescence or the nature of the inclusions.
The diamond industry keeps a very tight grip on these Rap reports, which are updated weekly. Part of the reason for this is that the prices are very carefully manipulated, and have been for decades, to benefit the producers. The true cost of a diamond bears scant relation to the values on the Rap Report, which are shifted up and down to maintain the image of scarcity in the market, and thus exclusivity. You can read more about Diamond Pricing here.
MINED DIAMONDS – RESALE VALUE
The value of a diamond is much like the value of a brand-new car – it drops as soon as you’ve walked out of the shop or driven it off the forecourt. This is partly down to the markup applied by jewellers, to cover the costs of maintaining their premises, but it’s also the case that a jeweller will be able to purchase diamonds in bulk for less than a second-hand diamond, so it’s just not worth their while.
There are four prices commonly attached to diamonds (discounting the ring itself for the moment):
– Cost price, for the jeweller, which is an inflated price in the first place from the Rap Report.
– Purchase price, that the customer pays, often a markup of 100% to 200% from the cost price, to cover the cost of operating the retail premises. Online retailers might have a smaller markup.
– Appraisal price, higher than the purchase price, perhaps by as much as 50%, given on a certificate at time of purchase. This inflated price fools the customer into thinking they have a great bargain, but really only pushes up their insurance premium, and puts more money into the jeweller’s pocket in the event that the policy is claimed upon.
– Resale price, perhaps only 25%-30% of the purchase price. So maybe even less than the cost price, even if the sale is conducted immediately. And that’s only with a jeweller, or online diamond merchant. Pawn shops, or person-to-person sales via marketplaces such as eBay, will generate even lower returns.
HISTORICAL RESALE VALUE
Even if the diamond that you are interested in determining a resale value for is not a recent purchase, there is still not a huge increase in price, in real terms. The price of diamonds has gone up more than 1,000% between 1960 and 2016, but inflation during that time has been around 700%, so it’s not a huge increase when it comes down to it.
There is growing enthusiasm for Victorian & Art Deco jewellery in recent years, but even in jewellery over a century in age, the value of the diamonds themselves doesn’t follow the same pattern as, say, a vintage piece of furniture. These items are desirable because of their age, style and historical provenance, rather than due to the intrinsic value of the diamond itself.
Many designers, Ethica included, are experiencing an increase in people requesting vintage-style designs, both in the setting and the diamonds, and we’d love to explore that with you, if you don’t have a genuine vintage diamond at hand right now.
LAB GROWN DIAMONDS
Lab grown diamonds are formed in a laboratory, rather than dug from the ground, and the cost of creating them has been falling in recent years. When they first hit the jewellery market in a big way, the price was comparable to a mined diamond, due to the manufacturing costs, but with new technology, this has been dropping. The purchase price has always been tied to the Rap Report, as part of the deal with the authentication bodies which certify and grade diamonds. The maximum price was fixed at 10%-20% less than per carat than the equivalent grade of mined diamond, for a while, but in 2021 it is more like 30%-40% less.
The resale value of a lab-grown diamond is the subject of debate in certain circles, and you can find articles that argue that there is zero resale value, none, nada! However, if you investigate the writers of these articles, you will see that they usually have links to sources which are dismissive of lab-grown diamonds, and have a vested interest in steering people away, and back towards the mined diamonds that they, coincidentally, sell. Funny that!
That said, there is some truth in the statement, in that a lab-grown diamond purchased five years ago would have cost more than an identical one purchased today. However, those scathing articles only tell half the story – yes, the price you would be offered to buy back a lab-grown diamond is lower than what you paid for it – but the same is very much true for mined diamonds also.
The Ethica Diamond, a fine alternative to mined and lab grown diamonds, is a credible and more wallet/purse friendly choice for the customer with an environmental and ethical conscience. It has always been priced according to the research and development costs, and manufacturing costs associated with the gemstone. Our jewellery prices have never been tied to the Rap report, and you will notice that they are considerably lower than an equivalent mined or lab-grown diamond. You pay for the genuine costs of the item, including design work.
The resale value of the jewellery is tied to the cost of producing the item, as with mined and lab-grown diamonds, and won’t appreciate with time.
We do understand why people ask us about the resale value of items they purchase from us – it’s because of the prevalence of the myth that diamonds are an investment. It’s hard to un-learn ‘facts’ that you once believed to be true, and accept that diamonds are not going to be a sound investment, or that you don’t need to spend months and months of your salary on an engagement ring.
The point of an engagement ring is to signify your promise as a couple to be together for the rest of your lives, and should be given from the heart. We always find it slightly uncomfortable when potential customers are glancing over their shoulder to see if they could get a good return on their ‘investment’ should the engagement break down. We do understand that, if you’re preparing to spend tens of thousands of pounds on a mined diamond engagement ring, you’d be concerned about ensuring its viability as a financial investment and may be distressed to find that it really doesn’t have one.
However, with the Ethica Diamond, our prices are substantially lower, and you can see that the price is fair for the item that you’re purchasing, so we hope that your mind will be set at rest regarding the amount that you’re planning to spend.