For the third consecutive month, worldwide polished diamond prices declined from last year’s levels.  In October, polished diamond prices fell just over 1 percent versus October 2005, according to the IDEX Online Polished Diamond Price Index.

 

October’s diamond price decline also represents the thirteenth consecutive month of weaker polished diamond prices.  Diamond demand peaked in the fall of 2005, and has steadily softened since then.  In the summer of 2006, polished diamond prices fell below the level of the prior year, a trend which has continued for the past three months. 

 

The graph below illustrates monthly diamond price trends for the past year.  Comparisons are based on monthly prices, year-over-year. 

 

Polished Diamond Price Trends Percent Change Year-over-Year by Month Source:  IDEX Online

October 2006 polished diamond prices also fell marginally – 0.1 percent – when compared to prices in September 2006.  This is a disappointing trend, especially as the industry approaches holiday selling seasons in several cultures around the world.  Typically, demand for polished diamonds would have begun picking up in October; unfortunately, demand for polished diamonds has remained soft in recent weeks.  Further, polished prices in late October were weaker than in early October. 

 

While polished diamond prices continue to soften, rough diamond prices appear to be holding firm in the current environment.  This is a setup for an unsustainable market, and is not characteristic of true capitalism based on price equilibrium which is achieved by balancing supply and demand.  This financial squeeze will ultimately lead to the demise of many of the financially weak diamond polishers, cutters, and others in the diamond supply pipeline. 

 

Polished Diamond Prices under Pressure Due to Several Factors

Several factors are dampening polished diamond prices, including the following:

 

• Market uncertainty – Consumers around the world have felt the pinch of higher energy prices, and the diamond and jewelry industry is expecting demand for discretionary goods to weaken as a result of consumers who have less money to spend on luxury goods.  However, demand trends in the U.S. market do not support this thesis; jewelry and luxury goods sales to American consumers remain strong. 

• Slowing global economy – Since diamond demand and economic growth correlate relatively closely, the prospect of a slowing global economy in 2007 has caused some diamantaires to cut back on their purchases of diamonds.

• High diamond industry debt levels – Banks are less willing to lend money to diamantaires for additional diamond stocks.

• High profile financial distress situations – In recent months, a few of the higher profile diamond suppliers have been forced to acknowledge that they are in financial distress.  This increased the “fear factor” across the industry.

• Higher interest rates – Higher interest rates are having a negative impact on the ability of both diamond suppliers and consumers to purchase goods which must be financed.  In the U.S., just under half of all diamond and jewelry purchases are financed on the monthly payment plan.

The graph below summarizes the IDEX Online Polished Diamond Price Index since the beginning of 2005 through October 2006.  It clearly illustrates that polished diamond prices peaked in the fall of 2005, and have been sliding since then.

 

IDEX Online Polished Price Index 2005 - 2006 100 = June 2004 Source:  IDEX Online

Solid Consumer Demand Forecasted for Holiday Period

For the 2006 holiday selling season in the U.S. market, IDEX Online Research is forecasting a sales gain in the 5-7 percent range, based on current fundamentals.  With the solid momentum which has carried the market so far this year, it is unlikely that anything – short of a system shock – could derail Americans’ strong demand for jewelry and diamonds. 

 

However, if jewelry retailers maintain their current lower inventory levels, the holiday selling season could become a self-fulfilling prophecy – soft.  If merchants don’t have the goods in their stores to sell, they won’t make their numbers.  Unfortunately, for many jewelers, it is probably too late to get more goods.  That will lead to weak sales in the early part of 2007. 

 

The IDEX Online Diamond Price Index

The IDEX Online Diamond Price Index is a real-time index derived from actual asking prices of the global diamond industry.  The IDEX Online Diamond Price Index objectively reflects price trends as they happen.  The Diamond Index and Diamond Drivers were formulated following comprehensive research and analysis of the IDEX inventory database, aggregated since 2001.  Research and development were conducted in cooperation with Dr. Avi Wohl, Senior Lecturer of Finance at the Faculty of Management, Tel Aviv University, Israel. 

 

Additional information is available from IDEX Research.  The e-mail address is diamondprices at idexonline dot com.