For over a century, diamonds have been one of the most highly coveted jewellery gemstones globally, featuring prominently in all types of jewellery, but most notably as a symbol of love and commitment in engagement ring designs. This hasn’t always been the case though, with less than 10% of engagement rings sold in the US in 1939 featuring the forever stone.
Diamond is composed of carbon, one of the most abundant elements in the earth’s crust and is chemically identical to fellow carbon allotropes such as graphite. Unlike graphite however, diamond is the hardest known natural substance on earth, with a score of 10 on the Mohs Hardness Scale (1-10), at the same time boasting the transparent and glistening properties which make it so desirable for use in jewellery. Diamond owes these unique properties to its molecular structure, whereby each carbon atom is covalently bonded to four other carbon atoms to form a three-dimensional tetrahedral lattice. The natural diamond formation process takes hundreds of millions, if not billions of years under the extreme heat and pressure conditions of the earth’s mantle to complete, after which natural diamonds are transported into the earth’s crust during kimberlite and other types of volcanic eruption.
Traditionally diamonds have been described as a ‘Veblen good’, i.e., one where consumer demand typically increases as the price increases, which contrasts with the demand dynamics of most goods. Had you walked into a jeweller or auction house at any point over the past 80 or so years and surveyed the array of sparkly pieces on offer, you would have been forgiven for assuming that the chemistry jargon and extremities of the formation process outlined above meant that natural diamonds were a rare phenomenon. In reality, natural diamonds are quite an abundant resource on earth, particularly relative to many other gemstones, even after considering that only 20% of mined diamonds make gemstone quality. That is not to say that, like with other gemstones, rarity does not exist within the natural diamond supply once the 4Cs (carat, clarity, colour and cut) grading framework is applied to individual specimens. It would however suggest that other factors have historically been at play in the diamond market beyond normal supply and demand dynamics, which warrants a whistle-stop overview of the past 250 years.
Diamonds are an abundant resource compared to many other gemstones.
In 1776, the Scottish economist Adam Smith presented the value paradox, otherwise known as the diamond-water paradox in his treatise ‘The Wealth of Nations’. Smith attempted to explain the value differences observed between water (low value, high utility) and diamonds (high value, low utility). He concluded that the ‘real price’ of everything was a product of the toil and trouble that went into acquiring it, and that therefore value in exchange exceeded value in use. At the time this wasn’t an unreasonable conclusion – diamond mining was limited to unsophisticated and inefficient practices in India and Brazil, leading to a genuinely toil-intensive and scarce supply. This dynamic held until the late 1860s, at which point the first primary diamond deposits were discovered in Kimberley, South Africa, which led to the industrialisation of deep-earth diamond mining, almost a century after Smith’s death in 1790.
History tells us that the playbook of evolution for many newly emerged capital-intensive industries is often very similar, and diamond production was no different. Many smaller players competed intensely, yet inefficiently, with limited resources and capital whilst ramping up supply as a collective. Supply-demand dynamics saw prices fall, meaning profitable production required either less supply, or lower costs of production. This in turn made scale, with good access to a cornered resource, a key competitive advantage, which ultimately led to industry consolidation.
Enter stage Cecil Rhodes and the company he founded, De Beers Consolidated Mines Ltd. Initially Rhodes rented expensive pumping equipment to small diamond producers who lacked the financial resource to purchase it themselves, reinvesting the profits into the acquisition of diamond claims through the 1880s. In 1888, De Beers was incorporated as a stand-alone company, having acquired monopolistic control of the South African (and, at the time global) diamond supply through its mine acquisitions. Anglo American became De Beers’ largest single shareholder in 1926, with its founder Ernest Oppenheimer joining the De Beers board that year and becoming chairman in 1929 having previously been refused a board seat by De Beers. To this day, De Beers’ largest shareholder remains the now FTSE100-listed miner Anglo American. Through the Central Selling Organisation (CSO) De Beers retained control of the diamond supply, using intense marketing campaigns to re-establish and maintain diamond’s Veblen good status. However, this cornered resource advantage was eroded through time by the discovery of deposits outside of De Beers’ traditional channels, and rejections of the CSO’s supply controls.
The largest disruptor to date in the natural diamond market however has been the mass commercialisation of lab-grown diamonds (LGDs). General Electric was the first to create a LGD in 1954, as well as the first gem-quality LGD in 1971. The now commercially used ‘chemical vapour deposition’ method of manufacture, was developed shortly after and refined over the following decades to the extent that the US Federal Trade Commission recognised LGDs as real diamonds in 2018. The problem natural diamonds face when competing against LGDs is the structural price differential, with LGDs of equivalent grade using the 4Cs framework pricing c.72% cheaper than natural equivalents in 2025. This dynamic appears attractive because it allows buyers to purchase equivalent pieces in terms of size or quality with a lower budget, or indeed larger and more complex pieces with the same budget.
Lab-grown diamonds of equivalent grade were 72% cheaper than natural diamonds in 2025.
From a generational perspective, the price differential appears to have resonated particularly well with millennials and Gen Z consumers. In the US, BriteCo data suggests 50% of millennial engagement ring purchases feature lab-grown diamonds, with this figure rising to two thirds in Gen Z purchasers. Far lower LGD penetration has been observed amongst Baby Boomers and Gen X consumers, for whom the provenance of natural diamonds appears to remain important. The trend of the overall market however points to LGD demand outstripping natural demand, with the overall market share of LGDs across all demographics and new sale categories having consistently increased since 2019.
Pressure from LGD supply and a receptive consumer base has led to a surplus of rough diamonds which has weighed heavily on natural diamond prices post-Covid. This has shown up at De Beers, with owner Anglo American writing down the carrying value of the business, a smaller part of the broader group, for a third time in three years in February 2026, having put the business up for sale in 2024 as part of its plans to simplify itself into a copper and iron ore driven business.
Changing consumer trends and tastes may well see natural diamonds have their day in the sun once again. But whatever the future evolution of the broader diamond market going forward, this example is a useful reminder for us as investors to scrutinise the strength and durability of competitive moats, even those centred around the strongest advantages in a world of ever-evolving technological advances.
