Posted on April 29, 2014 by

Are Diamonds Actually Expensive? Get an Insider’s Look at How Diamonds Are Priced

Many details about diamonds – they are a girl’s best friend, they are the hardest substance on earth and they are prohibitively expensive – are drummed into our consciousness but what is not immediately apparent is just how diamonds are priced. From an outsider’s perspective, there is a veil of secrecy that shields the diamond pricing process. By all indications, to those outside the diamond industry, nay, living out a diamond buying experience for the very first time, the various dollar figures may all seem overwhelming, confusing and inconsistent. So are diamonds actually expensive? And how do all these vendors determine the prices for their own diamonds? Today we provide you an opportunity to take an inside look into how diamonds are priced.

 

How Diamonds Are Priced

 

There are two classes of diamonds that exist in the diamond industry: colorless, informally referred to as white, and fancy colored diamonds. These two groups of diamonds not surprisingly have their color graded differently by the Gemological Institute of America (GIA), a highly respected grading laboratory with very strict standards and the world’s leading authority on diamonds and gems. Colorless diamonds are graded on a letter scale, ranging from D to Z, with D being of highest color for having a total absence of color (which, in colorless diamond terms, means yellow or brown) and Z ranking lowest for having light yellow or light brown.

 

Furthermore, they are grouped into a like range of colors:

D, E and F diamonds are colorless and show absolutely no trace of color, thus making them whitest of all

G, H, I and J diamonds are near colorless and usually appear white in a face-up position to novices.

K, L, and M diamonds have faint yellow or faint brown color.

N, O, P, Q and R diamonds are very light yellow or very light brown.

S, T, U, V, W, X, Y and Z diamonds are either light yellow or light brown.

 

Fancy colored diamonds, on the other hand, are graded – and therefore priced – in a completely different way. A color diamond’s grade is determined by the main color in the diamond, for instance, yellow. An intensity will also be assigned to that stone.

 

The extent of intensities varies for each diamond color, but a typical range will consist of:

Fancy Light

Fancy

Fancy Intense

Fancy Vivid

Fancy Dark

Fancy Deep

 

If any secondary or tertiary modifying colors exist in the diamond being graded, they will be indicated in front of the main color, from least to greatest prominence. For example, the diamond below has been graded “Fancy Deep Brownish Greenish Yellow” by the GIA. This means the diamond is primarily yellow with some overtones of brown but even more overtones of green. The diamond overall has been determined to have a Fancy Deep intensity.

 

0.44ct. Fancy Deep Brownish Greenish Yellow

This 0.44 carat cushion cut diamond received a color grade of “Fancy Deep Brownish Greenish Yellow” from the GIA.

 

Now that we’ve covered color grading systems, the million-dollar question remains, what bearing, if any, does that have on pricing? We’ve all heard the term “the Four C’s” thrown around at one point or another. Similar to their “A Diamond is Forever” advertising slogan in the mid-twentieth century, De Beers was the creative mastermind that popularized the term for the mainstream market. The Four C’s represents color, clarity, cut and carat weight. The GIA established a groundbreaking system that incorporated the grading of these four characteristics for individual diamonds and it is their systematic process that is now globally recognized and used.

 

In colorless diamonds, the lower the color grade, the less rare and less valuable the diamond. A diamond with a color grade of J will therefore be more common and considerably more affordable than a D-graded diamond. Diamonds with color grades beyond Z are fancy color and will experience a proportionate rise in prices. Although they are graded in a different manner, fancy colored diamonds observe the same rule: the rarer the color – and color intensity – the higher the price. Red diamonds are inarguably the rarest and thus priciest of all fancy colored diamonds. Vivid, followed by intense, are the two rarest, most desirable and priciest intensities in fancy colored diamonds.

 

While the price of colorless diamonds is set according to the Four C’s, clarity and cut play a much smaller role in determining the price of fancy color diamonds. Color and color intensity are the most significant factors that dictate the rarity, and thus the price, of a fancy color diamond as they are all about color first and foremost. Carat weight is critical as well because only one in every 10,000 diamonds mined will have natural fancy color. Therefore, a fancy colored diamond that weighs 1.00 carat will cost more than twice the price of a 0.50 carat diamond of the same color.

 

In the wholesale diamond trade, when it comes to colorless diamonds, vendors rely on a widely trusted source known as the Rapaport price list as their chief guideline for assessing pricing of loose diamonds. The price list is updated weekly at midnight every Thursday night. Rapaport price lists for colorless diamonds are divided into two groups: round brilliant cuts and pear shapes, which is used as a general guideline for other fancy shapes as well. Wholesale vendors will often sell diamonds at a discount off of the Rapaport price list and reserve premium pricing for diamonds that are very rare or in high demand. Rapaport prices are based on the GIA’s high standards of grading and serve as a barometer for vendors and their customers to help them gauge diamond prices.

 

Rapaport Price List

This is what a Rapaport price list looks like. This one is for round brilliant cut diamonds.
Source: rapnet.com

 

On the Rapaport price list, diamonds are grouped by carat weight ranges and are assigned prices based on color and clarity. To determine the Rapaport price for any particular diamond, look for the particular color and clarity of the diamond you need the Rapaport price for. All prices indicated in each price matrix on the list are by price per carat in hundreds of US dollars. For instance, according to this particular edition, a 0.95 carat J VS2 round will have a Rapaport price of $4,600 per carat.

 

While the Rapaport price list is commonly used and cited by industry insiders all around the world for colorless diamond pricing, no such guideline exists for the pricing of fancy color diamonds. Rapaport has acknowledged the reason for this absence is due to the sheer variety of color in fancy colored diamonds – too many colors and color combinations prevent the creation of a streamlined price guide for fancy color diamonds. Therefore, pricing of fancy colored diamonds may be wildly inconsistent among vendors. Fancy colors that tend to be more common, which are brown, yellow and grey, will usually result in lower prices while much rarer fancy colors, such as blue, green, orange, pink and purple, will typically sell at a premium because of their scarcity. Red diamonds will always sell for the highest price per carat of all diamonds, bar none.

 

Competition of course is a constant driving force behind diamond prices as well – use it to your advantage if you’re working with a fixed budget and need to shop around for prices. Armed with the information dispensed here, serious diamond shoppers should have a clearer idea of how prices are set by wholesale vendors and why they in turn pay the prices they pay for their diamond purchases.


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