Have you ever wondered how certain materials are priced? Everybody kind of understands how it all works. It’s a matter of supply and demand: If something is rare, it will probably be worth more than something you can find easily.
And it’s not just about the materials being rare, either. If something is difficult and costly to produce, the price will match those obstacles.
That all makes sense more or less, but we stumbled upon an interesting question – Why is gold cheaper than diamond?
It’s a valid question, and with what we said a moment ago, it raises many other questions, too. Gold, after all, is the currency basis, and it has been for a long time in many societies.
So, how come these shiny rocks get to be valued higher than the very thing our money is based on? Are they THAT rare or hard to produce?
Well, not exactly. The price of diamonds is a bit of a complicated subject. To understand it and compare it with the price of gold, we need to elaborate on a few things!
Why Is Gold Cheaper Than Diamonds?
Well, to answer this question, we first have to elaborate on the claim that gold is indeed cheaper than diamonds. Comparing these two can be a bit confusing to the untrained eye.
While some diamonds are more expensive than gold, that’s not true for all diamonds. And not only that – there are more types of gold than you think.
But how can that be? Gold is gold; there’s a reason that it’s such a safe investment!
Gold is a safe investment, but it pays off most if you’re buying pure gold.
Like diamonds, gold needs to be examined by a professional so its value can be determined. Now, we’ll get into the details of how both diamonds and gold are priced, but let’s just explain a couple of things before we get into that:
Gold, when mined, is too soft to be turned into, say, jewelry; it gets combined with other metals. So it’s pretty simple to figure out how it works based on that information.
The more gold there is in your “gold,” the more it will be worth. A gold bar, on the other hand, is usually made out of pure gold.
So, let’s take it and compare the value to diamonds.
Well, we’d love to do it, but what diamonds are you comparing it to here? There are usually no two identical diamonds in the world if we’re looking at the top-of-the-line specimens.
So, it depends on how big of a diamond you’re comparing to the gold, how pure it is, what the levels of discolorations are, etc.
Like gold, diamonds are rarely sold in their natural state. That is to say that you will make a more significant profit on a perfectly cut and formed diamond; rough diamonds sometimes get sold for multiple purposes.
Let’s say that you stumble upon rough diamonds in your backyard. Break it in two and sell one half to be used for industrial purposes and the other to be cut and sold as a gem – or in jewelry.
The prices will be completely different, as will the combination of materials that are needed for said jewelry. The problem with comparing these two, as you can see, is similar on both sides.
But alright then, let’s make a hypothetical example to see if we can ACTUALLY compare diamond and gold prices.
On the one hand, you have 1 carat of diamonds, and on the other, you have the equivalent weight in pure gold. The diamonds are already cut, they have no color – and they’re pretty much perfect. The gold is pure with no other metals in the mix. What’s worth more?
The diamonds are, and it’s not even a competition: One carat of diamonds is worth anywhere between $3600 and $6500, while the gold is worth an almost ridiculous amount of $10 on average.
That’s right; the difference is THAT big.
But as we said, there are just too many factors to consider. A carat is a weight measurement, nothing more, nothing less; other factors need to be included.
Those diamond prices are reserved for the purest and most perfectly cut diamonds in the world. And those are much rarer than just any rough diamonds you can dig up. The cost doesn’t just cover the weight of the diamond, but how it’s cut, how clear it is, etc.
But diamonds are made out of carbon and nothing else. And we already established that they’re just not that rare on our planet. Gold, on the other hand, is a pretty rare heavy metal, especially when compared to those shiny rocks.
So what’s the deal? Well, when it comes down to it, diamonds don’t have a fixed price to them.
Sure, there’s a system that’s used to determine their value – but have you noticed that we said that the price of a perfect 1-carat diamond is between $3600 and $6500? That is because even though there is a system used to figure out their worth, the system is easily manipulated.
Not on a large scale, sure, but your buyer can just get another person to evaluate the diamond you’re selling at a lower price. Not only that, the supply and demand of diamonds are usually altered from year to year to suit the corporations that mine and sell them.
If they need the price to go up, they just stop mining or hold on to the diamonds, so the demand will go up while the supply takes a break.
On the other hand, gold is a form of currency used in a free market economy. Its worth may still fluctuate – but not by that much. Gold, as a material, obeys the laws of supply and demand.
How Does Gold Get Valued?
Now, you’ve probably noticed that we were using the word carat a couple of times so far. Well, now it’s time to switch to a different, yet similar, word – karat.
That’s right; a carat is a weight measurement that’s used for diamonds. And sure, as a weight measurement, it can be used for pretty much anything. It’s completely valid to say that you have a 24-carat piece of gold.
But the weight of gold is usually represented in grams, kilograms, etc.
The trouble with carats is that they equal 0.2 grams of whatever it is that you’re putting on the scale. That measurement works for diamonds since you’ll have a pretty difficult time finding a few kilograms of diamonds.
Gold, however, is often sold in larger quantities, as it’s worth much less. A gold bar, for instance, weighs 12.4 kilograms.
The word karat, on the other hand, tells us how pure gold is: The purity is measured by checking how much the gold has been mixed with other metals.
For instance, a 14 karat piece of gold has 14 units of gold and ten units of some other metal to keep the structure as stable as possible. So. if you have a 24 karat gold plate, it means that you have pure gold that hasn’t been mixed with any other material.
Pure gold is often only sold as just the material, as it’s too soft to hold a specific shape or form.
See Also: Do Diamonds Weigh More Than Gold?
How Do Diamonds Get Valued?
Alright, we‘ve coerced gold and the process of determining its value. But what about diamonds?
Well, we’ve already mentioned that diamonds have a system by which they’re all examined. And this system is called the “4C-s.” The acronym stands for color, clarity, cut, and carat.
These categories are all equally important when determining their worth.
Once found, the rough diamonds can only be assessed to their weight – and sometimes clarity – depending on whether or not it has to be cut so that the possible fault could become a lot more apparent.
That is why the 4Cs are only determined after the diamonds have been cut and prepared to be sold. Industrial diamonds are not valued in the same way, though.
How many carats a diamond has – or to put it more simply, how much it weighs – is the obvious first step when professionals assess the possible worth of a diamond. We’ve already mentioned that 1 carat equals 0.2 grams.
That means that a 5 carat diamond weighs 1 gram. More carats mean more profit, but the other Cs need to be checked as well.
If a diamond is large but not pure (poor clarity and color), the weight won’t help get the price up. Smaller diamonds with good grades when it comes to all four Cs will always be valued much higher than those that pass just one.
Next comes the color of diamonds. The process here is simple; the less color a diamond has, the more its worth.
But there are guidelines to determining this, and those are called the DHNZ scale:
- D – This is the best grade a diamond can get, and it means that it is completely colorless.
- H – The H rating is almost perfect. Diamonds with this grade are usually without color but have other imperfections that hold the possible price at a lower point.
- N – The N rating means that the diamond has a yellow hue and cannot be considered translucent. It doesn’t matter if it has no other imperfections; the fact that it has a color means that it can’t get the higher grades.
- Z – The lowest color grade is the Z. Diamonds that have this grade can’t be considered translucent and colorless at all but are considered yellow. They can have imperfections, though this is not a rule as the DHMZ grade only covers the color of a diamond.
The clarity of a diamond is based on two things: blemishes and inclusions.
Blemishes are imperfections that are found on the surface of diamonds. That refers to scratches and spots through which light can’t go through.
These imperfections explain how one C can affect the other: You can have a completely colorless diamond, but it can’t be translucent because of some blemishes like spots and cuts.
Inclusions are faults that are found on the inside of a diamond. Just like blemishes, they can be spots, scratches, or anything else that doesn’t allow light to shine through uninterrupted.
The clarity scale looks like this:
- FL (Flawless) – There are no faults on the inside or out.
- IF (Internally Flawless) – Diamonds with this grade have blemishes but no inclusions.
- VVS1, VVS2 (Very, Very Slightly Included) – These still have no blemishes but have slight inclusions that can’t be spotted with the naked eye.
- VS1, VS2 (Very Slightly Included) – Diamonds with this grade are basically the same as ones with the VVS and VVS2 grade but show more inclusions when viewed under 10x magnification.
- SI1, SI2 (Slightly Included) – Faults are visible with and without magnification.
- I1, I2, I3 (Included) – These diamonds have faults that are visible to the human eye.
The last C that needs to be considered is the cut of the diamond.
It relies solely on the professional that was chosen for the job. Cutting diamonds is considered an art form by some – and there’s a limited number of people who do it perfectly.
Their job is, of course, limited by the other Cs.
If the diamond they’re working with has blemishes and imperfections, its value will go down. But a professional knows how to work that artform to his advantage: A well-cut diamond might have natural imperfections, but the name of the artist that did the job could take the price up!
Diamond Or Gold: Which Is The Better Investment?
So, let’s answer what some consider the most crucial question here: Which is a better investment?
Well, we hate to say it, but diamonds take the win this time, too.
While gold always has good value, the price of diamonds just seems always to go up! And if nothing else, you’ll always be able to make back what you invested. Gold tends to go up and down based on what the economy is doing at the moment.
What’s great about gold is that its value goes up during an economic crisis. It makes for a pretty neat backup if you have investments that are all over the place.
But still, we have to give diamonds the trophy. If you’re looking to make a significant profit, these gems will always be a good option.
So, when it comes to “why is gold cheaper than diamond?” there you have it! While gold and diamonds have an incredible value, glass always brings in a more significant profit.
That doesn’t mean that gold isn’t worth your time; far from it. It’s a stable investment that can sometimes make you a lot of money depending on the current economic situation in the world.
But if you don’t want to be bothered by whether or not the price will go up, go for diamonds. You really can’t lose money with them!
Read Also: Is Diamond Rarer Than Gold?