Pat McNees

How much is your diamond really worth?
(fantasy vs. fact)
by Pat McNees

This piece first appeared years and years ago on the wonderful Style Plus page of the Washington Post as “Are Diamonds Anyone’s Best Friend?”

The diamond ring we had inherited was too small for my hand, so I stuffed it quickly in the sock drawer, a little nervous that we finally had something worth burgling.

When real anxiety set in, my [then] husband and I decided to add the ring to our homeowners insurance policy. This meant getting it appraised first. For $39.50 (1 percent of the appraised value), we learned that the ring was worth $3,950. Anxiety turned to fantasy.

Although the appraiser said that in practical terms we couldn’t expect to sell it for more than $1,500 or $2,000 (insurance appraisals indicate replacement value, not true-market value), we began imagining a winter vacation, a down payment on a new car, a big payment on our Visa bill. We “spent” the money in a dozen different ways, added the ring to our insurance, and got a swift blow to the budget in return: Our insurance now would cost $79 a year more.

Happy to be $2,000 richer (less insurance and appraisal fees), we put off selling the diamond, out of ignorance of how to go about it. Then, as insurance-premium time rolled around again, we put out our first feeler, taking the diamond to a store that advertised: “WE BUY DIAMONDS, HIGHEST PRICES PAID.” What, we asked, would they give us for the diamond? Answer: $300.

THREE HUNDRED DOLLARS? For a ring appraised at nearly $4,000?

And then we learned that the pretty little ring that was going to send us to Tahiti, or put us into a Honda, wasn’t quite up to snuff in the four qualities diamond dealers pay attention to: carat weight, color, clarity, and cut.

Although our diamond weighed about 1 carat (or 200 milligrams), it was badly chipped (did you know that diamonds chip?) and would have to be re-cut. Estimates on the resulting weight loss varied from 20 to 40 percent, depending on the dealer. The color — H-I — was “acceptable” on a scale that goes from D to Z, with D being colorless, and therefore most attractive. The imperfections, however, were noticeable to the naked eye. The cut was out of style — an old-fashioned “mine” cut, flat, rectangular, and sweet-looking — compared with the round 58-faceted “brilliant” cut then popular.

As if that were not enough, diamond prices had fallen 60 to 70 percent since the appraisal was made. Indeed, writer Edward Jay Epstein was predicting a total collapse of the diamond market (see below).

Our fantasy bubble had burst. For this we were paying an extra $79 on our insurance?

We took the ring to 15 stores, many of which — including the store that had appraised it — showed no interest at all. We got offers ranging from $100 to a tentative $800, which later came down to $750 when the store owner had his gemologist examine it. [One firm offered $300 at its Chevy Chase site and $700 at its K Street site.]

Jewelers in two of the stores “not interested” in the ring made offers on the side of $400 and $500.

Several dealers told us that we might be able to sell it for more on our own. But we ruled out this option after calling 20 people who had advertised their diamonds. Only two had sold their stones, and one was an amateur gemologist who told us that the $750 offer was probably about as good as we would get. He also told us that colored gems — rubies, emeralds, sapphires, and colored diamonds — are better investments because they are naturally rare, whereas white diamonds are now rather common.

Another fellow had received $300 for a brand-new $600 ring he wanted to get rid of because his fiancé had walked out on him. Like most of the people who sell jewels through the classifieds, he met his prospective customer in a public place so as not to attract thieves to his home. He and the fellow who bought the ring got drunk together and cursed the faithlessness of women.

One woman was trying to sell her ring to make her first payment in a real-estate deal. She was furious because a downtown dealer had offered her only $750 for the ring, which had been appraised at $10,000.

Along the way, we learned a few home truths about selling diamonds:

* Unless you are in the diamond business, diamonds are not an investment, particularly at the engagement-ring level. Most of us must buy at retail prices and sell at wholesale or below. Retail prices reflect a mark-up of 100 percent or more.

* Appraisals for insurance purposes give retail value, plus 10 to 15 percent for rising prices. To calculate what you would get on the open market, you knock off half the appraisal and then perhaps another 30 percent according to one dealer who gave us a pretty good bid.

* The diamond probably would have been worth more to us if it had been stolen.

* From the owner of one of the most respected jewelry stores on Connecticut Avenue: “I generally tell people that they should be able to get one-fourth to one-half of appraisal value, but that’s not fixed in stone. Basically what you can get is what someone will offer you. As for buying diamonds as an investment, I see diamonds as toys for adults, like clothes or an Atari. You should buy them because you like them. If you want to invest, go to a stockbroker."[This was before the rise and collapse of dot-com stocks.]

For us, diamonds were more of a headache than a toy, and in the end we sold our ring to Heller Antiques, the store that offered $750 — and bought a new king-sized mattress with the proceeds.

Mattresses may not be forever, but neither, it seems, are diamonds.

The Making of the Myth

“The diamond invention — the creation of the idea that diamonds are rare and valuable and are essential signs of esteem — is a relatively recent development in the history of the diamond trade,” wrote Edward Jay Epstein in The Rise and Fall of Diamonds: The Shattering of a Brilliant Illusion (Simon & Schuster, 1982).

Until huge diamond mines were discovered in South Africa in 1870, gem diamonds were rare. Since the opening of South Africa’s mines, the diamond’s value — which depends on its scarcity — has been maintained artificially, Epstein claims, by the South Africa-based De Beers cartel, created in 1888 to prevent diamonds from becoming only semi-precious stones.

De Beers retained the N.W. Ayer advertising agency in 1938, writes Epstein, to figure out a way to get U. S. citizens to buy more and larger diamonds. Deciding that its best bet was to romanticize the diamond, Ayer launched a 20-year campaign to convince the American public — De Beers’ largest market — that diamonds were a necessary part of the engagement process, a proof of love.

“Even though diamonds can in fact be shattered, chipped, discolored, or incinerated to ash,” says Epstein, “the concept of eternity perfectly captured the magical qualities that the advertising agency wanted to attribute to diamonds.”

“A Diamond Is Forever,” under a picture of young lovers, became De Beers official slogan, lending diamonds the aura of both “romance and legitimacy.”

A similar campaign launched in Japan in 1967 had remarkable results: In 14 years the percentage of engaged Japanese women who received a diamond engagement ring soared from 5 to 60 percent, and Japan became the second largest market for diamond engagement rings.

Meanwhile, diamond mines discovered in Siberia in the late 1950s produced a flood of tiny diamonds, which soon came under the De Beers monopoly. Thus was born, says Epstein, the “eternity” or anniversary ring, composed of many tiny diamonds and marketed — indirectly — to older women in the name of “recaptured love.”

Diamond stockpiling by Israeli dealers, the discovery of diamonds in Western Australia, and the mail-order marketing of loose “investment” diamonds by fraudulent investment firms have all more recently, according to Epstein [in 1982], undercut the power of the De Beers group. Their diminished control of the diamond market, he says, “may bring about the final collapse of world diamond prices.”

• Five myths about diamonds (Tom Zoellner, Washington Post, 7-4-10)

• A reader's response: Diamonds are a girl's best friend but not your buddy at the pawn shop. "A brother-in-law gave me a ring for a loan. Your article prepared me for what I would be able to get out of it when his car went boom and my repayment was doomed. Thanks for taking the time to inform us sadder but wiser folks that had no idea the value of the diamond ring drops like a rock (bad pun.)" —— Al in Las Cruces

• Lab-Created Diamonds: Prices & Value (Michael Fried, The Diamond Pro, 3-15-21) "The price of lab-created diamonds have dropped in recent years, and we predict that trend will continue. With lab-created diamonds, the resale value is minimal. Jewelers don’t want to buy back lab-grown diamonds and if you try to sell them on eBay, you’ll get pennies on the dollar. "Having said that, if you’re intrigued with the idea of a lab-created stone and not bothered by seeing your diamond on sale for a lower price in the future, you can get more bang for your buck by going with a lab-created diamond."
• The Secrets of Diamonds (James MacDonald, JStor Daily, 1-8-17) "Different types of diamonds can explain different aspects of the Earth’s deep geology; extremely large diamonds are formed at the deepest depths of all and provide some of the only insight we’ve gleaned so far about the conditions inside our planet. In other words, diamonds are much more than nice jewelry."
• Diamonds from the Deep: How Do Diamonds Form in the Deep Earth? (Karen V. Smit and Steven B. Shirey, GIA, 2018) This serious article from the Gemological Institute of America is well illustrated.
• Why Physics Needs Diamonds (US Department of Energy, 4-6-16) The right diamonds are a key component in a novel system at Jefferson Lab that enables precision measurements to discover new physics in the sub-atomic realm -- the domain of the particles and forces that build the nucleus of the atom.