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Yellow diamonds are particularly rare gems, similar to black, red, blue, green and clear diamonds - they occur only as individual gems within existing clusters of faint yellow diamonds, which are themselves found only within kimberlite, itself found only within gabbro layers. Correspondingly, they are among the most valuable gems that can be found in Dwarf Fortress.
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Like all precious and rare gems, they may also make up part of the walls of unusual volcanic walls.