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Diamonds are natural products, and are formed at depths between 130 and 200 kilometres beneath the surface of the earth. At this depth the mineral carbon crystallises under immense temperatures and pressures to form diamond. These crystals only reach the earth's surface, or suitable mining depths, through volcanic activity. During the formation of the diamond, various minute internal features usually develop within the stone. These are referred to as inclusions, and are usually enclosed minerals which formed alongside the diamond, non-crystallised carbon, or fractures.

Although the number and type of inclusions can lower the value of a cut diamond, they also have positive effects. For example, the study of inclusions can help separate natural diamond from simulants, provide scientists with insights into how diamonds are formed, and as no two stones have exactly the same inclusions, they can help identify individual gems. Flawless diamonds are very rare and command top prices. At the other end of the scale are stones with inclusions that are easily visible to the unaided eye. The majority of gem diamonds used in jewellery fall between these two extremes, with inclusions that are only visible when examined under 10x magnification.

As with colour, diamond clarity is graded according to a scale. All grades are assigned after examination under 10x magnification. In addition to internal characteristics, diamonds can also have surface irregularities known as blemishes. These include scratches, nicks and areas of the original crystal face left on the surface of the cut stone.