Is it worth investing in diamonds?

Diamonds are primarily associated with jewellery, which most often it is an engagement ring or a Hollywood-style necklace. From time to time the industrial use of diamonds comes to mind. Since they are the hardest mineral found in nature, they are often used in the production of various types of machines. However, not everyone is aware of the investment potential hidden in diamonds. Let's look at the factors that shape the current diamond market trends and their impact on future prices.

Factors in favour of the growth of the prices of diamonds

The COVID-19 pandemic has profoundly changed the way consumers function. The obligation to maintain social distance, avoid interpersonal contacts or remote work made us start to do even more activities online. The 'stay at home' policy has also changed the way we shop. The impact of COVID-19 on the e-commerce market is enormous. This also applies to the diamond market and it is the new consumer habits that are the first factor that will determine the price of a gemstone.

Increase in the purchasing power

The demand for diamonds will increase in the coming years. One factor is the growing middle class and the growing personal income of consumers in major markets. In the world's second and third largest markets, China and India, it is predicted that the middle class will grow by 4% and 9% annually, respectively. The real personal income of Millennials and Generation Z is projected to double in 10 years. These groups are and will continue to be more and more important customers of jewellery companies. For this reason, more and more marketing campaigns promoting diamond jewellery are focused on social media. This will translate into an increased interest of these social groups in diamonds.

Chart 1. Forecast of a real income for Millennials and Generation Z in 10 years 

The demand for diamonds exceeds the supply

At the current diamond prices, by 2040 only 14 of the more than 50 currently operating commercial mines may be in operation. This will bring production down to 60 million carats from the current 145 million. By 2021, the diamond supply is projected to decline by 8-15%.

On the other hand, with increased demand, diamond prices will rise. The mines that have not been operational so far may be put into operation. Certainly, there are still many undiscovered deposits, so the forecasted number of operating mines in the future may change.

Customer behaviour on the diamond market

Consumer behaviour and the purchasing process have changed significantly due to the COVID-19 pandemic and the related "stay at home" policy. The changes also affected the diamond market and diamond jewellery.

The importance of e-commerce has been growing for several years. In China, in 2016, only 4% of jewellery was sold online by jewellery stores. In 2019, the sales increased to 11%. In the USA, in 2019, 13% of diamond jewellery was purchased online, compared to 10% in 2016. All in all, it is assessed that diamond jewellery accounted for 5-10% of online sales of all consumer goods in 2019. Due to the pandemic, 2020 could be a real breakthrough in online sales. Consumers, fearing COVID-19, tend to stay at home and have changed their habits. They avoid gatherings and make more online purchases.

Graph 2. Share of online sales of diamond jewellery 

Marketing in the diamond market

The increase in online sales is related to a more effective reaching a larger number of customers, especially those who do not have access to brick-and-mortar stores. Thanks to online marketing efforts, stores reach their recipients more effectively and can increase sales. Ads appear in social media and popular messaging services that are constantly used by Millennials and Generation Z.

Authors of advertising campaigns are focusing on education. They emphasize the priority role of environmental protection in the process of extracting diamonds and the social and financial benefits of the population living in the vicinity of diamond mines. The message reaches the recipient in an attractive, almost Hollywood package. The creators of the campaign want to engage recipients to interact as much as possible, arouse a sense of social responsibility in them and ultimately persuade them to purchase diamond jewellery.

Buying in online stores is convenient. Millennials and Gen Z are used to shopping online. The popularity of remote sales channels is also growing thanks to offline shopping, i.e. services such as buying online and picking up jewellery at a stationary point or checking online product availability in the nearest location.

COVID-19 and purchasing preferences

Weekly surveys conducted by De Beers Group (one of the largest international corporations specializing in the mining and trade of diamonds) show that ¾ of customers are not going to give up buying diamond jewellery due to COVID-19. However, the coronavirus has an impact on purchasing preferences as 46% of consumers intend to buy fewer diamonds, but allocate more funds for this purpose. Most importantly for the gemstone market, 75% of respondents do not expect their financial situation to worsen in the next 3 years.

Locally means more confident

Buying online, in the opinion of consumers, is becoming more and more secure. Still, customers appreciate local, brick-and-mortar retailers for the possibility of gaining an independent opinion, learning directly about diamonds and their quality. According to the survey, 62% of customers are attracted by the opportunity to receive a direct expert opinion and a personal touch. The online store cannot compete with this for the time being.

According to 78% of women, diamond jewellery makes a better investment value than gold, platinum or luxury watches. 90% of respondents want to give their loved ones a gift that will best maintain value over time. According to the survey, diamond jewellery is the best choice for these consumers.

An engagement ring must have a diamond

The symbol of the engagement is a diamond ring. In the US, which has been the largest jewellery market since 1990, popularity of this tradition is slowly declining. However, still more than 7 out of 10 brides receive a diamond ring. In this regard, it is worth paying attention to China. In the 90s of the last century, this tradition had just appeared there, and already in 2017, 47% of future brides received a diamond ring. Needless to say, the Middle Kingdom is a market many times larger than the USA, so the growing popularity of presenting an engagement ring will generate enormous demand.

Chart 3. The popularity of a diamond engagement ring

China is still a long way from catching up with the United States in the wedding jewellery market. In the US, the average weight of a diamond in an engagement ring is 1.70 carats, while in China it is only 0.19 carats. The difference is 9 times in favour of the USA! However, we need to take into account that in China, the size of the middle class is rapidly growing. With the current trend in the presenting of engagement rings and the increasing wealth of the public, the diamond market in China has enormous growth potential. This in the near future may translate into an increase in the prices of these precious stones.

Nowadays, however, there is a big challenge before the diamond jewellery market. It is the declining percentage of marriages concluded, among others in the USA, China and India, which are the countries that generate the greatest demand for diamond jewellery.

Luxury jewellery market in Poland 

Compared to the largest markets in Europe, i.e. France (the value of the luxury jewellery market in 2019 was EUR 1.99 billion) and Germany (EUR 1.95 billion in 2019), Poland looks pale (EUR 74 million). However, as estimated by KPMG analysts in their report The Luxury Goods Market in Poland. Luxury for generations, the luxury jewellery market will grow on average by 6.9% annually and will have reached a value of approximately EUR 110 million by 2024.

As in the world, also in Poland the importance of Millennials and Generation Z is growing. Especially people from Gen Z whose share in the sale of luxury goods, i.e. diamond jewellery, is growing the fastest. Brought up among the latest technologies, they make purchases mainly via the Internet. In social media, they follow their favourite brands which can easily reach them back. Millennials and Generation Z will become the strength of this market segment in the future.

Is investing in diamonds profitable?

In the coming years, increases in diamond prices will be supported by macroeconomic data. With short-term shocks (COVID-19 recession, currency and trade wars, middle-class unemployment in the US), the long-term view of this market is positive. In the next decade, the demand for diamonds, and especially jewellery made of these precious stones, will grow as a result of the dynamic economic growth in India (6%), China (5%) and moderate growth in the USA (2%).

It is estimated that the demand will grow by about 3% annually until 2030. At the same time, supply will be negative and will decrease by about 2% annually. The importance of the middle class in China and India will grow. In the Middle Kingdom, the forecasts assume 4% annual growth of this social group. In 2030, the middle class will account for 65% of all households. The forecast for India, where the middle class will double in 10 years, is also positive. In the US, China and India, the diamond jewellery market is expected to grow by 1-3%, 2-4% and 3-5% annually over the next 10 years.

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Diamond Education Center

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