(IDEX Online) – After rising consistently since late 2009, global polished diamond prices have slipped for the past two months, based on the IDEX Online Global Polished Diamond Price Index.

 

Polished diamond prices softened nearly every day during the early weeks of October, and trading showed little buying energy. However, during the final week of the month, polished diamond prices moved higher. Two factors caused this, according to our analysis:

 

·        Stronger-than-expected economic growth in the U.S. market – Preliminary data for U.S. GDP showed a solid 2.5 percent increase in economic activity in the third calendar quarter, well above most analysts’ forecasts. This quarterly gain was well above the first two quarters’ growth in 2011.

 

·        Diamantaires increased the number of diamonds available for trade – mostly diamonds that carried a higher per-carat price – during the final week of October. This was due to a perception that diamond demand, which is closely correlated to economic activity, was about to increase.

 

Still, there is uncertainty in the polished diamond market. Diamantaires and retail jewelers are awaiting the outcome of the all-important 2011 Holiday Selling Season of November and December, a sales event which affects perhaps 60 percent or more of total global diamond demand.

 

The IDEX Online Index finished at 142.9 on October 31, down significantly from a record daily high of 148.1, which was reached in late July, before the current price slide began. At the beginning of October, the IDEX Online Index stood at 141.2, its highest level for the month. The IDEX Online Index slipped to as low as 139.8 during the month, before recovering late in the period.

 

For the entire month of October, the IDEX Online Index averaged 141.0. The IDEX Index stood at 100 on July 1 2004.

 

The graph below illustrates global polished diamond prices for the past twenty-four months.

Source: IDEX Online

 

Polished Diamond Prices Slackened Throughout Most of October

Throughout the month of October, polished diamond prices showed weakness, with slippage almost every day, until October 27, when prices strengthened, a trend that has continued into November.

 

The highest polished diamond prices occurred at the first of the month, with the IDEX Online Index at 141.5 during the first week of October. From then onward, polished diamond prices dropped to below 139 briefly later in the month. The IDEX Online Index bounced back to 143 on October 27.   

 

Since then, in the opening days of November, polished diamond prices have held more or less steady, with the IDEX Online Index holding around 142.  

 

The graph below illustrates the daily average price of polished diamonds during October 2011.  

 

Source: IDEX Online

Month-to-Month Polished Diamond Prices Soft

When polished diamond prices are compared between October 2011 and September 2011 – based on the average price for the month – prices slipped by 1.6 percent in October. This decline was the third monthly drop since late 2009, when polished diamond prices bottomed as the recession was officially declared over (though it would be a while before the diamond industry would be convinced that a recovery was underway). Three months ago – in July – the month-to-month increase in diamond prices was 5.6 percent: this out-sized gain should have been a sign that we were nearing the top of a price bubble.

 

The graph below illustrates month-to-month price trends for polished diamonds. While there was some softness in mid-2010, prices had been quite strong until three months ago – August.

 

Source: IDEX Online

 

On an annualized basis, the October month-to-month price decrease would be about 19 percent or so. This annualized price decline is more modest than last month’s annualized decline of 25 percent, but it still represents a major shift in polished diamond price trends.

 

Year-to-Year Polished Diamond Prices: Rate of Inflation Slows

Polished diamond prices in October 2011 rose by a 19.7 percent from the same month a year ago, based on average prices during the month. This gain was eclipsed only by the 25.0 percent rise in July, a 24.1 percent gain in August, and a 21.4 percent gain last month. It reflects some of the air being let out of the price bubble that has built up over the past twelve months. Year-to-year comparisons are important because they take the seasonality out of diamond demand trends. In addition, they provide a longer term view of trends, which are almost always less volatile than month-to-month comparisons.

 

The graph below shows that October’s polished diamond price increase of 19.7 percent is well above prior gains over the past year and below the record increase for July. Further, it reflects a slowing year-to-year price comparison.

 

IDEX Online Research has never seen diamond prices rise so sharply in recent history. In the heady days of early and mid-2008, just before the Great Recession gripped the jewelry and diamond industry with its “take no prisoners” bone-crushing decline, year-over-year prices were rising in the low-to-mid teen range. By mid-2009, polished diamond prices were declining by mid-teen levels, but turned positive at the beginning of 2010, and perked up significantly by mid-year 2010. Since then, there has been no slowdown in polished diamond price increases, until August.

 

Source: IDEX Online

Prices Down for All Key Sizes of Polished Diamonds

Month-to-month prices were down in October 2011 for key sizes of diamonds. The price deflation by size of polished diamond was mixed. Gemstones of one-half carat and five-carat size showed the greatest month-to-month price decline, while four-carat stones showed the least price weakness.

 

The graph below shows polished diamond price trends on a month-to-month basis – October 2011 versus September 2011 – for key diamond sizes.

Source: IDEX Online

On a year-to-year comparison, polished diamond prices in October 2011 were up for most size of diamonds. Diamonds one carat and smaller posted sizable price gains, while prices of four-carat diamonds also rose sharply. Price gains were more modest for 1.5, 2.0 and 5.0 carat gemstones. This pricing disparity is similar to price trends over the past few months. 

Source: IDEX Online

The graph below summarizes three years of prices for key polished diamond gemstone sizes and qualities. After rising slowly since mid-2010, polished diamond prices have shown a downward bias for the past three months.

Source: IDEX Online

 

Outlook: Polished Prices Poised for a Pause?

Historically, polished diamond prices have risen by 3-4 percent annually. However, due to the lack of new supply coupled with increasing demand from new markets, it appears that diamond prices – over the long term – could continue to rise above their historic trends.

 

We note, with caution, that these seemingly “new” trends often turn out to be unsustainable. While the long term price and demand outlook for diamonds remains positive, diamantaires must remember that diamonds are a discretionary consumer purchase. At some point, shoppers may find a less-expensive alternative, and diamond demand could wane.

 

The table below summarizes the average price of polished diamonds, using the IDEX Online Polished Diamond Price Index. The pre-recession peak for diamond prices occurred in August 2008. Since prices began recovering about a year ago, the IDEX Index has trended solidly upward. The new, latest record price level (red box) occurred in July, far exceeding June’s record level. Since then, polished diamond prices pulled back somewhat.

 

Source: IDEX Online