Buying a Diamond? Its for love, but check the financials

Our six monthly review of the market as of March 2024.

And some very interesting Lab vs Natural financial information not to be missed if you’re considering a diamond. 

Currently, the diamond market is dropping, and nobody knows what will happen in the next six months, let alone the next six years. How have we arrived at this point when the price of diamonds has been very slowly but steadily rising for 100 years?

We have a coming together of history and the future, natural, mined 3 billion-year-old diamonds and lab-created diamonds, causing a massive upheaval to the entire industry. The diamond industry was built on the promise of a product with a limited supply, and now this limited supply has been completely turned on its head; in part, we now have an unlimited supply. This has caused both the value of natural and lab diamonds to plummet, nobody knows how disruptive this will ultimately be for the industry.

This price drop will continue for the foreseeable future, perhaps another 12 months, up to 5 years? and then it's thought things will start to level out. Lab diamonds may lose another 30% of their value in the next 12 months and will never recoup this loss; mined diamonds will lose out in the short term but should once again start a slow and steady increase in value as the industry re-establishes its advertising efforts, framing mined diamonds as the one true diamond. What this will eventually mean for lab diamonds is unclear. Many from the natural diamond industry hope they will be cast aside as costume jewellery, but I’m not so sure. We have seen huge acceptance of lab diamonds by younger generations of consumers, and they are not going to be so easily turned onto higher priced mined diamonds. They believe lab diamonds offer a more environmentally preferable outcome and as technology improves and energy sources change this will be proved even more so.

What does this mean for you and your dreams of sparkly nirvana? Two things to consider: your heart/head and your bank account.

Emotionally natural or lab? Much has been written on this subject so I’ll be brief. I love part of the story of natural diamonds. I love the thought of them being created under the earth's mantle 3 billion years ago, slowly making its way into my hand. Its an incredible journey that gives us a sparkly crystal that is so hard that it will outlast us and perhaps all of our ancestors. If the mining is carried out in a thoughtful way with miners paid and the environment cared for then it can bring prosperity to disadvantaged towns, cities and countries. One thing that cant be overlooked is the CO2 footprint of natural diamonds that come from large mines. The energy needed to remove the dirt and rock is immense. And the environment isnt always cared for, this is why traceability of diamonds is important, as is buying from a sustainably focused jewellery business like Utopian Creations. 

Depending on a number of factors lab diamonds can be grown producing far less co2 than it takes to mine a diamond, but it really depends on the energy used to grow the diamond. As a whole, it would be fair to say the lab diamond industry produces less co2/ct than the mined diamond industry, but its tricky to find enough solid evidence from either sector to make a generalised statement. In most cases there is less risk of abuse of human freedoms and health impacts from lab diamond production. Once again, purchasing from a sustainably focused jeweller like us is important. You can read more about how we source our lab diamonds in our education section and how we choose lab diamonds that have a lower co2 footprint, so they are a good choice for you and the planet. 

The financial implications of your decision can be far more serious than the emotional. There are a lot of people who may be able to stretch their funds, perhaps borrow a little and achieve the natural diamond of their dreams. They may be thinking they are doing the shrewd thing by purchasing an asset that will appreciate in the future. Currently, they are dropping in value, but yes, in the long term they should start to slowly rise again. Unfortunately, the increase in value of natural diamonds throughout history has been low, around 4% so if you buy a lab diamond and invest your savings wisely from the initial purchase price even if the lab diamond drops to a value of $0 you will still be far ahead of the natural diamond buyer. The emotional side may still win, but financially you should always purchase the lab diamond and anyone telling you otherwise is either lying or is too scared to really do the numbers.

Below is a basic flow that doesn't take into account things like the customer borrowing money for the diamond purchase. Please be aware that this is not financial advice. If you find any issue with the calculations below, please contact me and I’ll be more than happy to discuss your opinion. 

2ct E VS1 Oval 

Natural/Mined $40k

Lab $3k

The natural diamond buyer

The natural diamond purchase price $40k

Natural diamond walks out the jewellers and in the first 12 months may lose 20% of its value.

@12 months ownership, its value is $32k

Natural diamond lost a further 10% of its value over the proceeding 5 years while the market finds its new normal after the crash from lab diamonds.

@Six years ownership its value $28.8k

At the 6-7 year mark the diamond may have lost nearly 50% of its value, not a good investment at this point, but the industry has settled and natural diamonds are on the rise again. We can only base the rise on historical events, so a rise of 4% per year should be about accurate. Yes you read that correctly, only 4% per year. Diamonds have never been a good investment, they are beaten by all major share funds.

20 years of ownership its value is approximately $42k

The lab diamond buyer

The Lab diamond purchase price $3k

Lab diamond walks out the jewellers and in the first 12 months may lose 60% of its value.

After 12 months of ownership the value may be $1.2k

Lab diamond may lose almost all of its financial value over the proceeding 5 years as improved manufacturing processes drive prices down.

Six years ownership $0k

So at the 6-7 year mark the diamond may have lost nearly 100% of its value, not a good investment, however while $3k is a lot of money to “lose” did you not enjoy the diamond over the last 6 years and continue to? And now after being your engagement diamond it has a very high intrinsic value that may far outweigh the original purchase cost. If this is the case, perhaps $3k is a suitable cost.

Here is where it gets interesting. Let's say that when the lab diamond consumer chose the $3k diamond, they invested the other $37k.

Using a historical SMP500 calculator and the previous 6 years, the $37k would have grown to $57k, an increase of $20k.

This gives the lab diamond buyer a value of $54k and the natural diamond buyer only $29k, the lab diamond buyer is ahead by $25k an thats only after 6 years of ownership.

Lets take it out a further 14 years to the 20 year anniversary.

Lab diamond buyer should be sitting on around $130k

Natural diamond buyer about $42k

Both still own their lovely diamonds, and both diamonds still look identical and as beautiful as they did when they were purchased. Financially, there is a very clear winner, even though the lab diamond lost 100% of its financial value.

And lets not even talk about insurance costs!

Most customers are not going to be able to just pop a spare $37k into the SMP500 or any other fund. Most aspiring couples are young and are looking at purchasing houses, vehicles, weddings or might like to add to their family with a baby. That's yet another advantage of the low price of the lab diamond; the money saved can be spent on other, perhaps more important life ventures.

These days, the idea of someone putting all their hard-earned cash or debt into a diamond isn't necessary. For some, a natural diamond will still be the only answer and Utopian Creations can definitely help you find the perfect piece. However, if you’re even slightly interested in the lab option, I implore you to hold both a lab and natural in your hand that are the same size, colour and clarity. You will soon understand that they really are identical, that the only real difference is the emotional and the financial. 

At Utopian Creations, we specialise in ethically sourced diamonds. Both natural and lab-created. We do the research so you don't have to. We only offer the highest quality diamonds that have been mined or grown using best practices that protect workers and lessen the impact on our environment. For more information please see our website or contact us and book a complimentary consultation.