If we wanted to reduce the cost of producing further we could invest in laser cutting machines but right now the output does not justify the cost.

Most of tbe bid cutters use computer programs that map out the most efficient way to cut a diamond. In recent years, tremendous advances have been made using laser cutting machines that can cut and polish diamonds with minimal human labor.

Industrial Diamonds:

Of the 133 million carats produced, only half went toward jewelry. The rest went to lower-end industrial production, where diamonds are used for cutting, grinding and polishing, usually other diamonds. But they are the smallest, lowest value stones. The majority of diamonds for industrial use are now synthetically made.

It’s the jewelry business that generates the money; it represents about 95 percent of the value of production.

Diamond Pricing:

Like gold , the diamond industry has had high expectations for diamond demand, primarily due to the huge emerging middle class in India, China, and Latin America. Sales have indeed increased dramatically in those regions.

This would indicate that prices for diamonds should be steady to slightly higher. Prices for bigger, higher-quality diamonds have indeed risen, but prices for smaller, more commercial stones have remained relatively flat or increased only modestly.

Diamond Demand:

Demand is dictated by macroeconomic trends, or simply put, the state of the consumer. Prices are affected by economic booms and by recessions, like those in 2001 and 2008-2009. While prices did drop during the last global recession in 2008-2009, rough and polished diamond prices increased again in 2010 and 2011.

Because diamonds are a luxury item, demand growth is expected to parallel GDP growth. Slower GDP growth, which is now the expectation for the next couple years, particularly in the U.S. and Europe, is a problem for the diamond industry.

That’s also true for emerging market countries like India and China. And currency fluctuations are also an issue. The declining value of the Indian rupee, for example, is a major reason why diamond sales in that country declined in the second quarter of 2012 compared to the same period last year.

What’s hot in diamonds right now? Big ones. The biggest increase in pricing has been for larger stones of two carats and above. For example, between 2006 and 2010, prices for a polished one-carat diamond went up 5 percent a year, but prices for a three-carat diamond went up 10 percent, while prices for a five-carat diamond increased 17 percent.

Diamond Supply:

This includes production levels and sales of stockpiles of diamonds. For example, when Russia and Australia brought large mines onto the market in the 1980s, supplies increased and prices dropped.

On the supply side, the diamond industry has a problem — known reserves are declining, costs are going up, and grades are lower.

Historically, De Beers controlled diamond prices for decades because it had an effective monopoly on global production. But De Beers sold much of its inventory from 2002 to 2007 and no longer has such a strong grip on the market.

Another aspect that might affect diamond pricing in the future: improved acceptance of synthetic gem quality diamonds. Synthetic diamonds have been made for decades but are still largely confined to industrial uses. Prices would have to come down and consumers would have to accept the “value proposition” of synthetic diamonds. To date, none of that has happened.

Finally, there’s one other issue that might affect diamond demand: the creation of an investible market for diamonds.