Gold and Diamonds

I was in my friend’s workshop recently. He’s a goldsmith, the proper kind, with a laser welder, a magnifying glass tucked above one eye, and old fashioned tools he uses to make expensive things even more expensive. We were there because Suzie had lost a claw from the setting of her diamond engagement ring. One of those four tiny prongs that holds the whole romantic enterprise in place had simply given up, which made Suzie anxious until he fixed it in about ten minutes flat.

The argument about whether I should pay him lasted considerably longer than the repair. Once that was settled, badly from his perspective, we sat drinking coffee and he told me something I found genuinely fascinating. It doesn’t fit neatly into a financial story. I’m sharing it anyway.

Suzie’s ring has a half-carat main stone. Half a carat was what we could stretch to at the time, and we could only manage that because the owner of the business I worked for happened to know someone in the wholesale jewellery trade who let us in through the back door of the pricing. Without that connection, we’d probably have been looking at a very nice cubic zirconia or a microscope diamond.

But here’s what my goldsmith friend explained, coffee in hand, in that particular tone of a man sharing trade knowledge he suspects you’ll find more interesting than you have any right to. The cost relationship between the diamond and the gold in a ring like Suzie’s has completely reversed since the day I bought it.

Forty-odd years ago, the rough split was 80/20, eighty per cent of the ring’s cost was the diamond, twenty per cent was the gold. Today, that ratio has essentially flipped. The gold now accounts for around eighty per cent of the cost. The same ring, the same design, but with an entirely different financial story.

The reason is twofold. On one side, gold has undergone a massive price increase that makes my portfolio return look rather sad. On the other side, diamonds, once the symbol of geological rarity and therefore value, have been ambushed by science. Synthetic diamonds, which were the stuff of science fiction when I was growing up, are now indistinguishable from the natural thing and available at a fraction of the price.

The lab-grown diamond market has grown so rapidly that it has effectively crashed the value of stones. The earth spent billions of years making something rare, and then chemistry spent about fifteen years making it commonplace. The result is a complete inversion of what everyone assumed was a fixed truth about jewellery.

Diamonds may still be a girl’s best friend. But the simple 18 carat band of gold that holds one in place has become the serious money in the relationship. The romantic centrepiece has become the affordable bit. The humble supporting act is now the star.

Suzie’s ring is over forty years old. It seems that gold was a good investment all along. But as far as I’m concerned, I struck gold the day I married my youthful bride.