How Diamond Prices Quietly Crashed 60% in Just Five Years

 Good morning. This is Dylan Jovine with Behind the Markets. Happy Friday. Today is Friday, August 14th, TGIF. Today, I'd like to talk about something very old-fashioned, diamonds. So a buddy of mine has a son that wants to propose to his sweetheart, wants to get her a ring. And he said to me, "You know, I know you're interested in all sorts of markets. Are you interested in diamonds? Do you follow that commodity?" And I said, you know, A, it's not a commodity, but I said, "You know, I actually haven't looked at diamonds for a couple years. Let me look into that for a while." He asked me this story. If he's gonna take his son to get a diamond for the girl, what kind of leverage does he have when he negotiates with these people? And you know something? I haven't investigated this or looked into diamond prices in a while. Jewelry is of really no interest to me. But I'll tell you, I learned something that I didn't know, and I thought I'd share it with you so when your grandkids or kids are looking for diamonds, you can give them a piece of advice that might save them $5,000 or $10,000, significant piece of money. Anyway, so our generation, when we were growing up, you remember when you're buying a girl, proposing to your woman, you got to get her a diamond. They'd come up with all these marketing stuff, De Beers, the diamond company, would put all this propaganda in the magazines. How much should you spend on the diamond? What percentage of your salary? And is there cut, clarity, and all that kind of stuff. And, you know, but I didn't know that diamond buying habits have changed a lot since we were kids. That's for sure. Much like alcohol is changing. Diamond prices have actually been crashing over the past five years. And I had heard that, and I had knew it, I knew it, but I just didn't know how bad it was and how much the industry changed, and I thought it was important for you to know this too. They've crashed about 60% in the past five years. In 2022, a natural one carat diamond cost near $10,000 to $11,000. Today, 2026, a natural one carat diamond costs roughly $4,200. One carat diamond, my goodness, that's amazing. So of course, I pull on the string. Why are diamond prices falling? Well, you know, a lot of them are very simple things that we would know, like lab grown competition. Man-made diamonds are actually chemically identical, I'm sure you know this, to natural stones, but they cost a fraction of the price, which pulls millions, billions of dollars away from mined diamonds, which, you know, come with all that stuff, with the Africa, and the violence, and all this other stuff. Also oversupply. China got into the lab mining, you know, man-made diamond market, so of course, they flooded the world with them. So you know, basically flooding everywhere. So these basically man-made diamonds, which are chemically identical to natural diamonds, are just cheap and flooding the world everywhere. But also, I didn't know that buyer habits are changing. Younger generations, Millennials, Gen Z, they prioritize, of course, value, larger stones, or travel and all these other kind of hipster experiences that they do, over luxury diamonds. They don't view that as that important. I understand. I get it. So, you know, those are some of the ways or the reasons that the diamond business is really changing. It's really interesting. So I pulled the string a little further. Okay, that's interesting. What is the impact when you think of natural versus lab grown? You know, again, I talked to you about that basically mined diamonds for natural one carat diamonds down about 60% in the past five years. Like, wow, that's a lot. That's a big drop. Lab grown diamonds, prices have dropped so dramatically that wholesale rates are nearing the basic production floor cost. So for example, if it cost a million dollars to make 10,000 natural lab grown diamonds, cost a million dollars, basically they'll wholesale for like $1,025,000 or $1,050,000. There's no margin in it, wholesale to retail. Now, retailer to consumer, there is still margin in it, and I'll talk about that in a minute. Mined diamonds are down 60%, lab grown diamond prices are down 80 to 90%. Wow. This is why Anglo American has been trying, the big mining company, has been trying to sell De Beers for so many years. They own 85% of De Beers, and they're just trying to dump this stake as quickly as they can, and nobody wants to touch it. Nobody wants to touch De Beers. Naturally, when you see carnage like this, I always look for opportunity, right? So I actually started to look. Where are the opportunities here, you know? I wouldn't buy Anglo American for De Beers. You wanna see that sold, but nobody wants to touch that. So I looked at lab grown diamond companies, and I found Adamas One, symbol JEWL, and Brilliant Earth, BRLT. Those are all like trade by appointment, a dollar a share. Those are basically bankrupt, or they look bankrupt. I didn't dig into them. Once I saw that they were trading at a dollar and it doesn't trade often, I saw that kind of funky looking chart, I was like, "Okay, these are kinda dead on arrival." But you know, one company that benefits a lot from this that is still in play, still doing pretty well is Signet Jewelers. Signet is still going strong. Beat forecast. So what does that tell you? Stock is trading at $92, $3 billion market cap, 1.5% yield. Doesn't look cheap. Business is growing. Looks fairly valued. So I don't think it's a screaming buy. I wouldn't be chasing Signet. But that tells you that in the war between wholesalers and distributors and retailers, the balance of power has shifted to the retailer here. The retailer is able to buy those diamonds cheap, whether they're actually mined or lab-grown, and then add a price to it and then push that out to customers. They've got about, generally speaking, about a 20% margin. So bottom line, these companies, there's not really great opportunity here, but what you're seeing shake out here is very, very similar to what happens in every industry. I remember I used to own Gillette, Gillette razors. I used to own Procter, the company Gillette. What a great business. Everybody needs it. They add technology. It's very cheap to make razors. Every year, every couple, three years, they come out with the new Mach3 or Mach5 or whatever it is. They add a razor, they sharpen a blade. I don't even know if that's real. But what I do know is that they're able to come out with their new technology razor and raise prices above the inflation rate, which is great. But then Walmart became so powerful that Walmart had the pricing power over suppliers like Procter & Gamble, and Gillette. What was their competitive response? Procter & Gamble bought Gillette so they could bulk up and push back against Walmart. Walmart say to you, say, "Look, we're so big, you're gonna sell us razors at $3 a pop, whether you like it or not, if you wanna get into Walmart." Everybody needs to get into Walmart. Well, you know, what do companies like Procter & Gamble and Gillette do when a retailer gets that powerful, is they bulk up, and then they push back against the retailer and say, "No no no no no no no. We're actually too big for you to push around like that." This is the nature of the evolution of these kinds of things. What I suspect you'll see in the diamond business is massive consolidation after this carnage works out among these lab producers, these lab growers, and you'll see one big behemoth come out, and then it'll start to exert pressure on Signet and the jewelers and all the people capturing economic value now, but we are still innings away from that happening. Anyway, that's all I have for you today. Have a wonderful weekend. I will see you Monday.