There are literally tens of factors that directly and indirectly affect the price of diamonds.

But before getting in the details, the general principle behind the diamond prices lies in demand and supply.

It's as basic as this… when something is in scarce and it's demanded, its price will rise. This is true with essential goods like rice. And it's true for the luxury items like diamonds that are usually demanded by wealthy individuals.

(Courtesy: The Independent)

So, in the micro picture, over a stretch of a long run, the price of diamonds is influenced by demand and supply. (This is the reason why during economic slumps like recession, the price of diamonds gets low because at the time their demand drops. In fact, if you're planning to buy diamonds, time your purchase during the economic downturn to maximize the return from your investments.)

Now coming to the small and prevalent factors that influence the price of diamonds, it includes 4 Cs:

• Carat: This is the weight of the diamond. More the weight, more expensive it would be.

• Cut: Diamonds come in many cuts (emerald, cushion, oval, marquise, more). Cut basically means proportion. Certain cuts are more appealing, emitting better sparkle. So, they are more expensive.

• Color: The more colorless the diamond is, the more expensive will it be.

• Clarity: It means visible flaws, like cracks and unevenness. If the diamond has more flaws, the cheaper it would be.

(Courtesy: Robb Report)

Microscopically, there are a few other factors that affect the price of diamonds. Like grading, polish, and symmetry.

Also read: What is the difference between moissanite & Diamond?

The jewelers consider all these big and small factors, along with prevalent market price, when pricing diamonds.

(Courtesy: The New Economy)

Hope this answers your question.