Diamonds symbolize a lifetime commitment for some and mark important milestones for others. Step into any velvet-lined luxury jewellery showroom, and the experience is carefully crafted to be intoxicating, with the stones marketed as possessing “timeless value”.

But step outside the showroom, and the illusion quickly fades. Try monetizing the gem during a financial crunch, and the reality of the secondary market can be sobering. Disruption from lab-grown diamonds, supply pressures and shifting consumer preferences have exposed an uncomfortable truth: they are a sentimental splurge or a consumable luxury—not an investment.

Price correction

One must look at the cracks in the global diamond market to understand the risk of treating diamonds as an investment. Natural diamond wholesale prices have dropped significantly, with prices of the gem typically below 1 carat declining by roughly 30% from 2022 peaks, according to the Rapaport Diamond Price Statistics Annual Report. Prices of the jewel had shot up in 2022 due to post-covid spending amid supply disruptions.

Colin Shah, managing director of Kama Jewelry, explained the shocks in the natural diamond supply chain. “Number one would be geopolitical tensions, specifically around sanctions on supply coming out of Russia. Number two is a massive drop in demand for all luxury goods in China. Third is the advent of lab-grown diamonds. Together, these factors squeezed both demand and supply.”

“Larger natural diamond solitaires have witnessed a 40% to 60% decline over the last few years,” noted Pooja Sheth, founder of Limelight Lab Grown Diamonds. “A large contributor to the price crash has been the increasing competition from the lab-grown category. For years, consumers have been sold a marketing story where the premium was based solely on rarity, whereas today’s definition of luxury has changed.”

Preference shift

The sentimental value of natural diamonds remains strong for buyers like Marykutty John, a 72-year-old psychologist and trainer from Kochi. She views her purchases through an emotional and generational lens.

“I chose diamonds over other luxury items because of their beauty, brilliance, and elegance,” she said. “Diamonds are precious treasures that I enjoy and hope to pass on to my grandchildren. I bought them out of love and admiration rather than as an investment.”

“To me, the premium on natural diamonds is still justified because of their rarity and heritage,” she added.

However, younger and middle-aged consumers are taking a rational, utility-driven route. Gaurav Chawla, a 46-year-old businessman from New Delhi, views his natural diamond acquisitions as aspirational status symbols.

“For many consumers, including myself, a diamond purchase is similar to buying a Cartier over a regular watch or a Mercedes over an everyday car. It’s not always about utility; it’s about aspiration, symbolism, and status,” Chawla said. However, the rise of identical, low-cost alternatives has him considering the buy.

“When two stones can appear virtually identical, the exclusivity traditionally associated with natural diamonds comes under pressure. Today, given the quality available and the fact that most people cannot visually distinguish between natural and lab-grown diamonds, I would certainly consider synthetic diamonds. They offer compelling value for money.”

Sheth also pointed out that the millennial consumer is looking for utility and does not want expensive assets locked away in lockers.

Liquidity and resale problem

The test of any investment is liquidity: how fast can you convert it back into cash, and at what cost? This is where the diamond moves away from being an investment.

Neha Ann Lal, a 28-year-old senior associate from Kochi, buys diamond jewellery purely for everyday wear, as jewellers offer minimalist diamond designs while gold jewellery remains heavily traditional.

“I was made aware that if a diamond is to be resold, it has to be brought back to the exact same store where it was bought. But I was actually not aware that diamonds cannot be kept as collateral, until a friend who wanted to take a gold loan tried to pledge her diamond jewellery as collateral and was rejected,” she said.

Unlike gold, diamonds are subject to information asymmetry. Rajesh Rokde, chairman of the All India Gem & Jewellery Domestic Council (GJC), emphasizes the infrastructural difference: “Gold is a massive, highly standardized commodity with a very big exchange level. It is easy to buy, sell, or trade anywhere. Diamonds, on the other hand, are incredibly difficult to resell or exchange. To give you perspective, of the approximately 7,000 to 8,000 jewellers in Mumbai, only about 700 deal in diamonds. That's only 10% of the market.”

Certifications and markups

The lack of awareness of what actually drives a stone's value makes it even more difficult to resell diamonds.

“The biggest oversight from the consumer’s side is certification,” warned Chawla. “Many buyers focus primarily on the jewellery design and price tag, but pay insufficient attention to the certification of the stone itself.”

While seasoned buyers know to look for globally recognized certifications like the Gemological Institute of America (GIA) or the Gemological Institute of India (GII), many first-time or casual buyers may end up with in-house certificates issued by independent jewellers, which hold no credibility during a third-party liquidation.

Consumption vs investment

One must separate emotional satisfaction from wealth creation. “The jewellery industry will always sell you the romantic story that ‘diamonds are forever’ to frame it as a great investment. But in reality, it should never be treated as one. The cost of retail acquisition is significantly greater because you aren't just buying a raw stone, you are paying a bundled package that includes steep making charges, labour fees, and the cost of the precious metal setting,” said Santosh Joseph, founder of Germinate Investment Services.

“If ever there was an illiquidity-driven market controlled entirely by the seller, it is diamonds. When you go to resell, the diamond and the gold get completely separate valuations.”

He further explained why diamonds cannot be used as collateral: “Diamonds cannot be pledged for loans. When you run gold through a carat meter, a bank can instantly verify its precise value. You cannot do that easily or objectively with a diamond embedded in jewellery.”

Making sense of the spend

If your goals are liquidity and investment, financial instruments are your best bet. Gold comes in a near second but only in a modest allocation of 10-15% of the portfolio. To optimize returns, avoid ornate jewellery and buy pure gold biscuits, or better yet, digital Gold ETFs that eliminate storage costs and retail markups, Santosh noted.

On the other hand, if you are buying a diamond for the design, as a milestone marker, or for the emotional joy, it's best to treat the glimmering purchase as a luxury consumption expense.

Diamonds symbolize a lifetime commitment for some and mark important milestones for others. Step into any velvet-lined luxury jewellery showroom, and the experience is carefully crafted to be intoxicating, with the stones marketed as possessing “timeless value”.

But step outside the showroom, and the illusion quickly fades. Try monetizing the gem during a financial crunch, and the reality of the secondary market can be sobering. Disruption from lab-grown diamonds, supply pressures and shifting consumer preferences have exposed an uncomfortable truth: they are a sentimental splurge or a consumable luxury—not an investment.

Price correction

One must look at the cracks in the global diamond market to understand the risk of treating diamonds as an investment. Natural diamond wholesale prices have dropped significantly, with prices of the gem typically below 1 carat declining by roughly 30% from 2022 peaks, according to the Rapaport Diamond Price Statistics Annual Report. Prices of the jewel had shot up in 2022 due to post-covid spending amid supply disruptions.

Colin Shah, managing director of Kama Jewelry, explained the shocks in the natural diamond supply chain. “Number one would be geopolitical tensions, specifically around sanctions on supply coming out of Russia. Number two is a massive drop in demand for all luxury goods in China. Third is the advent of lab-grown diamonds. Together, these factors squeezed both demand and supply.”

“Larger natural diamond solitaires have witnessed a 40% to 60% decline over the last few years,” noted Pooja Sheth, founder of Limelight Lab Grown Diamonds. “A large contributor to the price crash has been the increasing competition from the lab-grown category. For years, consumers have been sold a marketing story where the premium was based solely on rarity, whereas today’s definition of luxury has changed.”

Preference shift

The sentimental value of natural diamonds remains strong for buyers like Marykutty John, a 72-year-old psychologist and trainer from Kochi. She views her purchases through an emotional and generational lens.

“I chose diamonds over other luxury items because of their beauty, brilliance, and elegance,” she said. “Diamonds are precious treasures that I enjoy and hope to pass on to my grandchildren. I bought them out of love and admiration rather than as an investment.”

“To me, the premium on natural diamonds is still justified because of their rarity and heritage,” she added.

However, younger and middle-aged consumers are taking a rational, utility-driven route. Gaurav Chawla, a 46-year-old businessman from New Delhi, views his natural diamond acquisitions as aspirational status symbols.

“For many consumers, including myself, a diamond purchase is similar to buying a Cartier over a regular watch or a Mercedes over an everyday car. It’s not always about utility; it’s about aspiration, symbolism, and status,” Chawla said. However, the rise of identical, low-cost alternatives has him considering the buy.

“When two stones can appear virtually identical, the exclusivity traditionally associated with natural diamonds comes under pressure. Today, given the quality available and the fact that most people cannot visually distinguish between natural and lab-grown diamonds, I would certainly consider synthetic diamonds. They offer compelling value for money.”

Sheth also pointed out that the millennial consumer is looking for utility and does not want expensive assets locked away in lockers.

Liquidity and resale problem

The test of any investment is liquidity: how fast can you convert it back into cash, and at what cost? This is where the diamond moves away from being an investment.

Neha Ann Lal, a 28-year-old senior associate from Kochi, buys diamond jewellery purely for everyday wear, as jewellers offer minimalist diamond designs while gold jewellery remains heavily traditional.

“I was made aware that if a diamond is to be resold, it has to be brought back to the exact same store where it was bought. But I was actually not aware that diamonds cannot be kept as collateral, until a friend who wanted to take a gold loan tried to pledge her diamond jewellery as collateral and was rejected,” she said.

Unlike gold, diamonds are subject to information asymmetry. Rajesh Rokde, chairman of the All India Gem & Jewellery Domestic Council (GJC), emphasizes the infrastructural difference: “Gold is a massive, highly standardized commodity with a very big exchange level. It is easy to buy, sell, or trade anywhere. Diamonds, on the other hand, are incredibly difficult to resell or exchange. To give you perspective, of the approximately 7,000 to 8,000 jewellers in Mumbai, only about 700 deal in diamonds. That's only 10% of the market.”

Certifications and markups

The lack of awareness of what actually drives a stone's value makes it even more difficult to resell diamonds.

“The biggest oversight from the consumer’s side is certification,” warned Chawla. “Many buyers focus primarily on the jewellery design and price tag, but pay insufficient attention to the certification of the stone itself.”

While seasoned buyers know to look for globally recognized certifications like the Gemological Institute of America (GIA) or the Gemological Institute of India (GII), many first-time or casual buyers may end up with in-house certificates issued by independent jewellers, which hold no credibility during a third-party liquidation.

Consumption vs investment

One must separate emotional satisfaction from wealth creation. “The jewellery industry will always sell you the romantic story that ‘diamonds are forever’ to frame it as a great investment. But in reality, it should never be treated as one. The cost of retail acquisition is significantly greater because you aren't just buying a raw stone, you are paying a bundled package that includes steep making charges, labour fees, and the cost of the precious metal setting,” said Santosh Joseph, founder of Germinate Investment Services.

“If ever there was an illiquidity-driven market controlled entirely by the seller, it is diamonds. When you go to resell, the diamond and the gold get completely separate valuations.”

He further explained why diamonds cannot be used as collateral: “Diamonds cannot be pledged for loans. When you run gold through a carat meter, a bank can instantly verify its precise value. You cannot do that easily or objectively with a diamond embedded in jewellery.”

Making sense of the spend

If your goals are liquidity and investment, financial instruments are your best bet. Gold comes in a near second but only in a modest allocation of 10-15% of the portfolio. To optimize returns, avoid ornate jewellery and buy pure gold biscuits, or better yet, digital Gold ETFs that eliminate storage costs and retail markups, Santosh noted.

On the other hand, if you are buying a diamond for the design, as a milestone marker, or for the emotional joy, it's best to treat the glimmering purchase as a luxury consumption expense.