Editor’s Note
This article highlights a dramatic divergence in the precious materials market, where gold’s status as a safe-haven asset has seen its price soar, while natural diamonds have faced a significant decline.
The price of gold has more than doubled in the last three years. Following Russia’s invasion of Ukraine, global economic uncertainty increased, propelling gold as the epitome of a safe-haven asset. Central banks worldwide have also been scrambling to buy gold as the status of the US dollar, the key currency, has been shaken. The price of silver has also more than doubled this year alone, driven by explosive demand from advanced industries like artificial intelligence (AI).
In contrast, natural diamond prices have halved during the same period. According to the International Diamond Exchange (IDEX), the diamond price index fell to 86.08 as of the 27th of last month. This index, which standardizes international diamond prices, uses the price from February 2001 as its base (100). Compared to the peak over the last five years in March 2022 (158.39), it has fallen by over 45%.
The core reason behind the sharp decline in natural diamond prices is cited as the rise of lab-grown diamonds. ‘Lab Grown Diamonds’ are, as the name suggests, synthetic (artificial) diamonds cultivated in a laboratory. However, they are not fake diamonds. Their composition, crystal structure, hardness, and optical properties are 100% identical to natural diamonds.
While natural diamonds are formed over millions to billions of years under high pressure and temperature 120-200 km below the Earth’s surface, lab-grown diamonds are created artificially in a laboratory in just 2 to 6 weeks. Methods include placing a small diamond seed in a high-pressure, high-temperature chamber or injecting gases like methane or hydrogen into a vacuum chamber to grow the diamond. This is similar to cultured pearls, where a nucleus is inserted into an oyster and grown in the sea.
Ten years ago, lab-grown diamonds were priced at about 90% of natural diamonds. However, due to advancements in manufacturing technology and increased production, they now cost only 10-20% of natural diamond prices. For mid-to-high-grade stones, a natural diamond costs about 15 million won per carat, while a lab-grown diamond costs about 3 million won.
As lab-grown diamond prices have plummeted, their market share has also risen significantly. According to diamond experts, lab-grown diamonds accounted for only 1% of the diamond market in 2015 but grew to about 20% last year. The global lab-grown diamond market is projected to grow from about $25.89 billion (approx. 38.3 trillion won) last year to $74.45 billion (approx. 110.11 trillion won) by 2032, with an average annual growth rate of 14.11%.
The explosive growth of lab-grown diamonds aligns with a value-for-money trend, particularly among younger consumers. Global consulting firm McKinsey analyzed in a report that “the enormous success of lab-grown diamonds has pulled natural diamond prices down more than the mining industry expected,” citing “consumers who want a cheaper option” as the background. Stephanie Binder, CEO of Boston Diamond Company, stated:
Celebrities also no longer insist on natural diamonds. American actress Rooney Mara, who rose to stardom with the horror film ‘Nightmare,’ chose a lab-grown diamond for her engagement ring when she got engaged to actor Joaquin Phoenix in 2019. Numerous celebrities, including Meghan Markle, wife of Britain’s Prince Harry, singer Taylor Swift, and actress Emma Watson, are known as lab-grown diamond enthusiasts. In the US last year, 52% of couples chose lab-grown diamonds for their engagement rings. This is a 40% increase compared to 2019, surpassing natural diamond engagement rings for the first time in history.
The environmental and ethical problems arising from the natural diamond mining process are another reason young consumers prefer lab-grown diamonds. In Africa, diamond mining has caused numerous problems, including human rights abuses such as forced labor and child labor, and environmental destruction. Lauren Kaye, Editor-in-Chief of The Knot, said:
In China, the world’s second-largest diamond market after the US, demand for natural diamonds has plummeted due to low birth rates and aging. The number of marriages in China shrank from 13.46 million in 2013 to 6.106 million last year, effectively halving in about a decade. Demand for diamonds, a traditional wedding gift, inevitably decreased. The public’s love for diamonds is also not what it used to be. Chinese people are reducing diamond purchases while increasing gold investments because the price of gold, a representative safe-haven asset, is steadily rising. Gold also has the advantage of being easier to resell and having more transparent pricing than diamonds.
Lab-grown diamonds are more environmentally friendly and have lower production costs compared to natural diamond mining. Major countries producing lab-grown diamonds include the US, Israel, Belgium, Canada, and Australia. Recently, Chinese and Indian companies have entered the lab-grown diamond manufacturing market in large numbers, significantly increasing supply. The expansion of online shopping is also cited as a factor accelerating the spread of lab-grown diamonds.
Due to the high popularity of lab-grown diamonds, De Beers, the world’s largest diamond company, is facing its biggest crisis in over 130 years. Last year, its sales fell by 23%, and inventory worth $2 billion piled up. Foreign media have even reported that De Beers is facing a sale crisis.
The economy of Botswana, Africa’s top natural diamond-producing country, is also staggering. Although a significant portion of Botswana’s territory is useless desert, it thrived as a high-income country in Africa thanks to natural diamond mining. However, with a sharp decline in natural diamond revenue, the economy contracted by 3% last year, and GDP is projected to decrease by 0.8% this year. The natural diamond-related industry accounts for about 30% of Botswana’s fiscal revenue and 75% of its foreign exchange earnings.
The production cost of lab-grown diamonds is falling by over 20% annually. Martin Rapaport, Chairman of the global jewelry distribution group Rapaport Group, predicted:
Currently, mid-to-high-grade lab-grown diamonds cost around $2,000 per carat, but some online stores already offer lab-grown diamonds for a few hundred dollars. The scarcity and investment value of diamonds will continue to decline. ‘Diamonds are not forever.’
