Great piece by Rohin Dhar at Priceonomics titled, Diamonds Are Bullshit. Rohin makes some great points regarding Diamonds as investments and why they should be avoided.
In finance, there is concept called intrinsic value. An asset’s value is essentially driven by the (discounted) value of the future cash that asset will generate. For example, when Hertz buys a car, its value is the profit they get from renting it out and selling the car at the end of its life (the “terminal value”). For Hertz, a car is an investment. When you buy a car, unless you make money from it somehow, its value corresponds to its resale value. Since a car is a depreciating asset, the amount of value that the car loses over its lifetime is a very real expense you pay.
A diamond is a depreciating asset masquerading as an investment.
Gold and silver are commodities that can be purchased on financial markets. They can appreciate and hold value in times of inflation. You can even hoard gold under your bed and buy gold coins and bullion (albeit at a ~10% premium to market rates).
But with that caveat in mind, the market for gold is fairly liquid and gold is fungible - you can trade one large piece of gold for ten smalls ones like you can a ten dollar bill for a ten one dollar bills. These characteristics make it a feasible potential investment.
Diamonds, however, are not an investment. The market for them is neither liquid nor are they fungible.
Rohin goes on to show how historically diamonds were positioned as status symbol by the likes of De Beers which is a monopoly in the Diamonds space. The bigger the diamond, the more love you have for your partner. Through clever marketing De Beers and the likes were able to establish Diamonds as "symbols of indestructible love". Result being, today, over 80% of women in the US receive diamond rings when they get engaged.
Closing statement from Rohin sums it very well.
"Diamonds are not actually scarce, make a terrible investment, and are purely valuable as a status symbol."
But then you go through the comments on the article and you can see what fine job Diamond marketers have done on human psyche. The engagement ring is no longer a luxury but a necessity. The engagement ring and the diamond has become symbolic with marriages/proposals. And if not diamond, what do we replace it with? Unless we have something of similar value (and which is a good investment) & significance accompanied by good marketing, we will not be able to do away with Diamonds.
In India there is a tradition of giving sweets (called Mithai in Hindi) on joyous occasions, be it marriage, your birthday or even buying a car. This has been tradition for hundreds of years. But then over the last 10 years or so, Cadbury's to start with followed by Indian brands like Parle and Britannia have made a severe dent to this tradition by replacing Mithai's with Chocolates. This again like Diamonds was driven with very clever marketing, involving some big Bollywood names like Amitabh Bachchan and driven in a very cohesive manner targeting smaller Indian festivals and then going after bigger one and then going across every joyous moments. Today it is difficult to imagine Brother giving any other gift than a chocolate during Raksha bandhan to his sister. While I won't say the Chocolate domination is complete or even close to banishing mithai's from Indian traditions, they surely have made their place in Indian hearts, especially with youngsters.
While old customs die hard, a good substitute (aided by some intelligent marketing) can help replace market leader.