Calculating Diamond Ring Prices

Diamond ring prices depend heavily on 12Cs:

Traditional 4Cs:

  1. Diamond Carat weight
  2. Quality of the Cut (such as polish, symmetry, etc.), and the stone’s
  3. Clarity, and
  4. Color…
    …as well as:
  5. Cut design or diamond’s shape
  6. Cloudiness (or diamond transparency)
  7. Certification of the diamond characteristics (often known as the 5th C)
  8. Conception, or whether the diamond was born in the ground or in a laboratory
  9. Cosmetic “surgery,” or any treatments the stone might have undergone
  10. Craftsmanship of the ring setting (its design and workmanship)
  11. Conditions of the market impacting both the diamond prices and prices of precious metals from which the ring setting is made
  12. Contractor’s or seller’s markup on the diamond stone and on the ring setting

Some of these factors vary day to day, while others are more stable.

The 4Cs

The 4Cs (carat weight, color, clarity, and cut quality) determine the majority of the diamond’s price – up to 90-95% by some estimates. The question, “Which of the 4Cs is the most important to a diamond’s price?” is often asked. A regression analysis (a special mathematical analysis) of 6,000 diamonds from online retailers determined that carat weight was the reigning factor. Will it be the heaviest consideration for every jeweler? No. Each jeweler prices diamonds differently:

  • Wholesalers (due to high volume of purchases), and online retailers (due to significant price transparency and ease of comparison shopping) typically price their loose diamonds as close to “true market” prices as one can get.
  • Brick-and-mortar retailers, however, price their stones based on other considerations, such as level of service they provide, strengths and desirability of their brand, location of their stores, and the general sense of how much markup they can bear based on the types of customers they get through the door. All of the factors must be considered together.

Since jewelers do not all agree on which factors are more or less influential on diamond prices, some make use of the old adage “one man’s trash is another man’s treasure.” For example, one jeweler may think of a large diamond with many obvious flaws to be junk. Another jeweler, who happens to have a background in cleaving large diamonds into smaller diamonds, may think that same diamond is a worthy investment, because he can break the diamond in such a way that several smaller flawless diamonds will be formed.

Professional merchants in the diamond industry use the so called Rapaport price as a benchmark for determining the “wholesale” prices. Industry sellers and buyers use the “Rap price” as a starting point for loose diamond pricing. However, the Rap prices do not take quality of the cut into account and price stones based just on carat weight, clarity, and color. Therefore the Rap price is just an approximation and might be off by 20-30% from the actual wholesale prices both on the low or the high side. Thus it is important to examine a particular diamond’s cut and understand other factors mentioned above.

Shape (Cut Design)

All diamond shapes are not created equally. Some require larger rough diamonds from the start. Others waste more rough diamond than their peers. And some require jewelers with higher levels of expertise.

Round cuts, which remove more of the rough diamond than most other cuts, are more expensive to produce. By comparison, an emerald cut diamond with similar grades in carat weight, color, clarity, and cut, may cost 30% less than its round cut counterpart.

However, since over 75% of the diamonds sold are round cuts, if the diamond ring may ever need to be resold, it should be easier to resell if the stone is a round cut.

Transparency (Cloudiness)

Colorless, transparent diamonds are valued more highly than white, milky, or cloudy diamonds. However, transparency is not specifically graded during certification.

To test for transparency, view the diamond from several directions, including the sides, to judge whether you can see through the diamond like you would through a clear glass of water.

Transparency is often confused with clarity. Clarity describes inclusions and surface blemishes; a white cloud is one type of inclusion that can impact clarity grade. However, some diamonds are white or cloudy throughout. These non-transparent diamonds will not have the same sparkle as transparent diamonds; at one time they were considered industrial grade, not worthy of cutting into gemstones.

Transparency is sometimes confused with color. When a dealer requests certification for a cloudy diamond, he can ask that clarity grade not be included. The resulting evaluation may determine the diamond is “fancy white” in color.

Beauty is in the eye of the beholder. If you want a white diamond, buy a non-transparent diamond. It may be the perfect piece in your diamond ring’s design. And it may help lower the overall diamond ring price.

Certification

Diamonds can be sold with or without certificates authenticating their 4Cs. Diamonds without certificates should cost less than their certified counterparts. For example, one popular jewelry retailer sells a round, one-carat solitaire diamond in a 14-karat white gold ring for $3,100. The same jeweler sells a ring with the same description, plus the word “certified” for $4,800.  Both diamonds are I-color, I1-clarity, one-carat, round. So, they may be exactly the same diamonds, except one is certified.

There are many sources of certifications, from world-known gemological institutes to jewelry store in-house gemologists. Diamonds certified by well-known laboratories such as GIA and AGS carry a premium, so they will naturally cost a little more than diamonds certified elsewhere. If you are certain the diamond’s qualities are being accurately represented, you can always send the diamond for certification after its purchase, usually for much less than the price difference between certified and uncertified diamonds.

Conception

Diamonds have been dug out of the ground for centuries. Diamonds have been grown in laboratories for industrial purposes for mere decades. As laboratories perfected their techniques, they were able to produce gem-quality stones, diamonds impossible to differentiate from natural diamonds without sophisticated testing.

Most jewelers can’t tell the difference—until they look for the brand name inscribed on the diamond girdle or read a brand name on associated packaging. There are a few indicators, though. Natural diamonds are more likely to have internal flaws. Fancy color diamonds—very rare in nature—are more likely to have been cultured in laboratories. Nonetheless, both natural and man-made diamonds can be certified by major gemological laboratories and are held to identical standards. There is, however, one large differentiating factor: price. Natural diamonds command a price premium over “man-made,” “laboratory grown,” “cultured” diamonds. So, if you have your heart set on a diamond pulled from the dirt in a diamond mine, expect to pay more for it.

Treatments (Cosmetic Surgery)

Treated stones have had “cosmetic surgery” to enhance their appearance. A trained gemologist can test a stone to determine whether it retains its natural state or has had treatments. Words that will tip off a shopper to treatments include HPHT processed, irradiated, annealed, enhanced, coated, processed, etc. If any of those words are mentioned by the jeweler, on the certificate, or on the Web site, realize that the diamond has been treated and hence should be valued lower than their untreated brethren – so, evaluate the diamond ring price accordingly.

Since treated stones were once less desirable, the enhanced stones should be priced lower than their “naturally perfect” counterparts. However, some jewelers price their treated stones with an additional premium, telling customers they should pay for having their diamonds enhanced. So, while most treated diamonds cost less than untreated diamonds, it is not the case across the market.

Unfortunately, most treatments have negative long-term impacts on the diamonds. Fillings change color after lengthy exposure to different types of lighting. High-pressure, high temperature treatments leave diamonds more brittle, making them more likely to chip or scratch. Imperfections removed by laser drilling create holes in the diamond, making it less stable, and, again, more prone to damage.

Setting Style (Craftsmanship)

There are many different diamond ring setting styles, and there is an infinite number of individual embellishments that can create the diamond ring’s style. The more time the jeweler needs to craft the setting, the higher the labor-related portion of the cost should be. A ring that requires unusual skill to craft or will take longer due to intricacy will naturally cost more than a diamond ring set in a standard setting.

Market Conditions

The world has many diamond mines. The world also has laboratories creating gem-quality diamonds. Realistically, supply is very high, and the addition of a few more laboratories or a new diamond mine should not impact the diamond ring prices. Additionally few people realize that the diamond market is not a ‘perfect market’ like that for stocks and bonds—it is a near monopoly that for more than a century has been controlled by the Oppenheimer family through their majority stake in the DeBeers holding company. Today the Oppenheimer family shares majority ownership with a global mining conglomerate Anglo American. Founded in 1888, DeBeers managed to gain a monopolistic position in the world’s rough diamond markets in the 1930’s by tightly controlling the supply of rough stones to the diamond market. They achieved this through ownership of or strict partnerships with all the largest diamond mines in Africa (primarily Botswana, Africa’s largest diamond producer) and, at some point, with Russia.

Even if there were a sudden spike in the number of engagements requiring diamond rings, the demand would not likely impact diamond ring prices in the open market. Realistically, couples get divorces. Others pass away. Some inheritors of diamond rings return them to the market, selling them to jewelers or whoever makes a decent offer.

The only possible shock to market conditions that would significantly impact diamond ring prices would be either a huge anti-diamond ring movement or a major breakup of the DeBeers monopoly on rough diamonds supply. DeBeers monopoly has been gradually diluted over the last two decades as Russia’s Alrosa, a giant diamonds producer based in Siberia, has been largely refusing to play by DeBeers’ rules. However, Alrosa has also learned that dumping stones into the market is not in its own interests. So, it started pricing diamonds at or close to DeBeers’ own prices, which effectively established a duopoly in the market when both players divided the market share and managed to keep the diamond prices largely intact.

However, market conditions do have an impact on the price of metal used for the ring setting. Gold, platinum, and palladium all cost money. The amount of metal used in a ring setting is a factor in the diamond ring price overall. Often an increase in ring size, for some sellers, will include an additional cost to cover the extra bit of needed metal.

To estimate the value of the setting’s metal, find out its exact weight, and then look up the current market price for that particular metal. If you don’t know the exact metal type, look inside the ring band for a stamp describing the setting’s metal. A stamp such as “10 K,” “14K,” “18K,” “585,” “750,” “900,” “950,” “PT,” and “Plat” describe the metal used.

Location (Contractor)

How you purchase your diamond ring has an impact on the overall price. A diamond ring can be bought through “clicks, bricks, or bulk,” meaning online, at a retail store, or through a wholesaler. A purchase from a true wholesaler should be less expensive than from a retail operation and could be less expensive than that from an online seller. But most real wholesalers are not in the business of selling diamond rings one at a time.

While many online sellers offer better prices than most retailers, there is overlap in the market. Do not assume “online” means “better price.” Shop around. For example, a search of just a few retailers and online stores for a GIA-certified, round, 1.0-carat, VS1-clarity, G-color, “very good” cut diamond (on Oct. 23, 2008), showed retail prices ranging from $7,400 to $10,900. A sample of a few online stores offered the same diamond stone for $5,850 to $9,200.

Non-factors

Age

Diamonds cut several decades ago may have used designs less likely to allow the diamond to sparkle. This makes sense—laser technology and high-tech simulation models were not available, so jewelers worked with the best knowledge they had. Accordingly, older diamonds may seem dull or lifeless. All of this is captured in a certification report, as part of the cut grade. There should not be an additional discount given—or surplus requested—simply due to the diamond’s age.

Sentimental Value

While most people buy their diamond rings from strangers—brick-and-mortar or online retailers, or wholesalers—there are a few who purchase a ring from a family member or a friend no longer in need of it. When calculating an appropriate diamond ring price, it is important to leave sentimental value aside. What would the diamond ring price be on the open market? What payment could your friend or relative hope to receive from a stranger? If the relative asks an enormous sum, and you feel it is too much, politely decline and buy a diamond ring elsewhere. Feeling awkward about overpaying can erode sentimental value very quickly.

Conclusion

Diamond ring prices depend on a variety of factors, but none to the exclusion of the others. With so many variables in play, it is important to comparison-shop across the market, looking for the sellers in your range who can give you what you want, and it is equally important to be wise to factors that can (or can’t) reduce the price.

For those who just can’t let go of “the 4Cs,” think of this additional information as the 12Cs: carat weight, cut quality, clarity, color, cut design, cloudiness, certification, conception, cosmetic surgery, craftsmanship, market conditions, and contractor.