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posted: 10/10/2012 8:07 AM

Gold holds higher value than diamonds

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  • Visitors to The Field Museum's Grainger Hall of Gems can marvel at this diamond and platinum necklace, circa 1914.

      Visitors to The Field Museum's Grainger Hall of Gems can marvel at this diamond and platinum necklace, circa 1914.
    Courtesy of The Field Museum, 2008

 

Students in Katherine Crawford's fifth-grade class at Mundelein's West Oak Middle School asked, "What's worth more, diamonds or gold?"

Almost since the beginning of time, craftsmen and artists have used gold and diamonds to fabricate stunning jewelry, decorate buildings, create artwork and even embellish furniture.

Both gold and diamonds are difficult to mine and require skilled tradesmen to hone and create treasures from raw materials. Both are used in industry and manufacturing.

Which is more valuable, though, gold or diamonds?

"It all depends on the demand and the supply in the market at the time you're considering buying, selling or investing," said Michael Miller, economics professor at DePaul University, Chicago.

Gold is a chemical element and can be found nearly everywhere on the planet. Pure gold is very soft. Metals are added to pure gold to make alloys. The number of karats (sometimes written as carat) lets you know how much pure gold is found in jewelry -- the higher numbers mean there's more pure gold. Gold jewelry can be 24-karat, 18-karat, 14-karat or less.

The weight of the gold object is measured in troy ounces. Today, gold is selling for about $1,700 per troy ounce.

For hundreds of years, gold has been considered a very secure investment. The price of gold per ounce is the same across the world. The price doesn't change if gold is new bullion or heirloom jewelry.

Unlike oil, the price of gold won't drop if the market suddenly becomes flooded with gold. Since the value of gold is predictable and stable, gold has more value than diamonds.

Natural diamonds are created when carbon is subjected to extreme pressure over millions of years. Diamonds were first mined in India more than 3,000 years ago. Carats are the unit of weight used for diamonds and other gemstones. One carat is about .2 grams.

The price of a diamond is determined by what experts call the four "C"s -- carat, clarity, cut and color. A rating is assigned to each characteristic, which helps determine value.

A one-carat pear-shaped white diamond with good clarity can range from $1,800 to $2,000.

Just like a car, a diamond's value decreases once it leaves the showroom. Only a highly prized diamond, like a very large stone or an unusual color, will hold its value or become more valuable over time.

Since there is so much variability in the four C's and there is no set unit price that is recognized in worldwide markets, diamonds are valuable but not as valuable as gold.

Miller explains the concept of value.

"Several things in the past were much more valuable than they are today. Spices, for example, were very important to make food tasty when there were no refrigerators to keep meat fresh or ovens to cook the food properly," Miller said.

"If you are in the middle of a desert where water is scarce, a gallon of water could be more valuable than a pound of gold because people need water to live."

Anything can increase in value because of demand. For instance, video game makers know the demand for new video games will peak at the Christmas season, so they time product releases to take advantage of the higher demand and match price to demand. Once the product has been on the market for a while, demand decreases and so does the price.

"When economists try to figure out what anything is worth we look to markets to give us the answer," Miller said.

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