Diamonds are found in abundance in nature. Diamonds have no instrinsic value. Still, diamonds are expensive! Why? The reasons are explored in a well-written article: Have You Ever Tried To Sell A Diamond? by E J Epstein. The article was published in The Atlantic in February 1982. Summary of the article:
1) Monopoly: The DeBeers Family of Companies controls the supply of diamonds worldwide through a monopoly. Maintaining such a stronghold for over a century makes an interesting corporate saga. The company successfully negotiated threats due to newly discovered mines worldwide through purchases, closures and exclusive government contracts.
2) Marketing: The association of diamonds with expression of everlasting love is one of the most successful marketing campaigns of the 20th century. Interestingly, the name 'deBeers' never appeared in these campaigns! The whole idea was to impress upon the public mind that diamonds reflected love, proportional to the size of the diamond. The marketing campaign is described lucidly by Epstein.
3) Reselling: Re-selling a diamond is difficult; the secondary market for diamonds does not exist through tight controls on wholesale and retail stores by deBeers. Thanks to decades long marketing campaigns, sentimental barriers exist in sellers' and buyers' minds. Sellers are reminded that "Diamonds are Forever" and buyers do not want "used diamonds" for engagement rings. So even though diamond prices rise over time, diamonds are actually a poor investment unlike gold and silver.