Diamond Market - How is it different from gold market?

Here, I will give you a brief overview of diamond market and how its structure is different from gold market.

Through the economics of the diamond industry and the deep understanding of humans, a market was developed for diamonds making them not only a luxury, but a necessity.

In order to read about international diamond cartel and how it operates, check De Beers Diamond Cartel.

Background of Diamond Market

The market of diamond is traditionally regarded as composed of 3 main market segments, Industrial diamond, Investment diamond and Gemstone market. These three markets operate much differently from one another.

In case of industrial diamond, stones are mainly valued because of their hardness and heat conductivity. Roughly 80 percent of mined diamonds are not suitable as gemstones and can only be used for industrial purposes. In addition to mined diamonds, synthetic diamonds are also widely used industrially.

The investment diamonds segment is composed of rare and high-value diamonds. These diamonds are of high investment value. For instance, in 2008, a 35.56 carat blue diamond named the Wittelsbach Diamond was sold at a price of US$24 million at a Christie’s auction. You must also read prerequisites of investing in diamonds and things to consider while reselling diamond.

In the gemstone market, diamonds are mostly valued due to their gemological characteristics (4 Cs).

A handful of businesses (De Beers Diamond Cartel) control the supply chain of diamond. Most production organizations conform to an explicit set of rules and manage their production in line with demands and stockpile the excess diamonds.

Basic Difference between Gold & Diamond Market

Despite the similarities between gold and diamond (are rare, have unique physical properties and both associated with beauty and wealth), their respective market structure is very different.

These differences are:

  • Historically, gold was widely used as currency, and it has supported international exchange since prehistoric times, while diamond has a relatively short history and is mostly used as gemstones, religious icons, and adornments.
  • The price of gold is determined by the open market and fluctuates rapidly in response to economic conditions (political and economic uncertainty, supply and demand for gold, inflation, and government auction policy might be the underlying factors influencing the gold price). In contrast, the international market of diamond is a cartel controlled by a handful of firms. The De Beers Diamond Cartel is one of the longest existing cartels with duration of over 100 years.

So, it can be said that Diamond market is characterized by producer prices instead of exchange traded prices.

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