The minion doesn't want a diamond. When you talk to him, he goes through ALL THE GEMS YOU HAVE. If you are missing one, the option isn't offered. You need to start with the lowest possible gem, so make sure you have EVERY gem in your inventory or you won't be able to complete the quest. (hint, did you trade up the littlest gem for bigger gems?).

You have to give him an Agate - the lowest type. Why? Because all he knows is that diamonds are super rare and are something he's never actually seen before.

Well, in the Haunted Castle, you're extremely unlikely to whack up anything higher than a Jade, but you are guaranteed not to whack up an Agate as that they stop appearing after a certain level of bushes (I don't know the exact number, but I'm gonna guess level 5 bushes). That said, he's never seen an Agate either, so, since he's not the brightest minion, you just hand him an Agate and he'll go on believing that it's super rare.

He's not telling her what to do, he's explaining a possible funny reason why it's that way.