Global polished diamond prices rose sharply in April 2007, both on a month-over-month basis as well as on a year-to-year comparison, according to the IDEX Online Polished Diamond Price Index. April’s polished diamond price gain was the strongest since mid-2006, on a year-over-year basis, and the month-to-month gain – April versus March 2007 – was the largest increase over the past couple of years.

 

The strength of diamond prices over the past two months indicates that demand is strong at retail for diamonds and that pipeline inventories are moderating.

 

April vs. March 2007 +1.0 percent

 

April 2007 vs. April 2006 +2.2 percent

 

Large Stone Price Increases Strongest

Polished diamond price increases have not been broad-based across all sizes and quality levels. Similar to previous months’ trends, larger and better quality gemstones have shown the greatest price increases while prices for smaller stones were either flat or showed only modest gains. Consumers of luxury goods around the world continue to demand better quality goods, a category of diamonds which is generally more scarce. Thus, price increases for high quality stones have been above average.

 

Diamond Price Increases Accelerating

For the past five months, global polished diamond prices have risen at an accelerating rate. On both a year-over-year basis and a month-to-month basis, the upturn in diamond prices began near the end of 2006. Since then, price increases have accelerated on a year-to-year comparison. On a month-to-month basis, there has been some volatility in diamond prices in 2007, though the monthly trend clearly indicates that prices are strengthening.

 

The graph below summarizes the IDEX Online Polished Diamond Price Index since the beginning of 2005 through April 2007. As the graph illustrates, global polished diamond prices are moving solidly upward, after languishing for most of 2006.

 

 

Source: IDEX Online Research

 

Polished diamond prices remained very strong for the entire month of April 2007. Based on the IDEX Online Polished Diamond Price Index, prices remained above an index level of 112 for all but five trading days of the month. Even when prices dipped below an index level of 112, it was only a very modest decline, and was soon followed by a price rebound.

 

Several factors are responsible for the solid price gains. Among the most important reasons are the following: 1) jewelers have continued to replenish their stock based on current demand trends at retail; 2) diamond demand and supply is in better balance throughout the diamond pipeline after being bloated with diamonds for much of 2006; and 3) rough diamond suppliers have refrained from flooding the market with goods.

 

Month-to-Month Prices Up

The graph below illustrates the percentage change in global polished diamond prices on a month-to-month basis since the beginning of 2006. Comparisons are based on daily average prices for the month for all sizes and quality of polished diamonds, with the percentage change based on each month versus the immediate prior month (e.g. April 2007 versus March 2007). 

 

 

Source: IDEX Online Research

 

 

Year-to-Year Polished Diamond Prices Up Sharply

The graph below illustrates the percentage change in average monthly global polished diamond prices on a year-over-year basis. Comparisons are based on daily average prices during the month versus the same month a year ago (e.g. April 2007 versus April 2006). The year-to-year comparison takes into account the seasonality of polished diamond demand and prices.

 

 

Source: IDEX Online Research

 

 

Large Stone Prices Up, And Demand for Smaller Stones Improving

For the past several quarters, prices for large, better-quality polished diamond gemstones have risen solidly and consistently. Conversely, prices for smaller diamonds either have been flat or down.

 

In April, it has become clear that demand for smaller diamonds is strengthening. On a month-to-month basis, prices for all of the major stone sizes – from one-half carat to five carat stones – rose for the first time in many months.

 

The graph below summarizes the price change of polished diamonds by size during April 2007 versus March 2007.

 

 

Source: IDEX Online Research

 

 

The graph below illustrates the price change for the same six key diamond sizes on a year-to-year basis (April 2007 versus April 2006). These six diamond sizes represent about 30 percent of the diamond trading market by dollar volume.

 

 

Source: IDEX Online Research

 

 

Diamond Price Outlook: Continuing Uncertainty

There is a high correlation between diamond demand and economic cyclicality. When global economic growth is robust, diamond demand is typically strong. Conversely, when economic growth slows, diamond demand often contracts. Most economic forecasters are calling for a slowing of the global economy during 2007. The U.S., which consumes roughly half of all diamond jewelry sold in the world, just experienced a sharp decline in first quarter economic growth.

 

If diamond demand softens in response to economic growth, we can expect diamond prices to soften later this year. However, based on historic trends, diamond prices should have already begun to weaken. Thus, it appears that historic demand patterns may not be typical in the current cycle. None-the-less, in the absence of any other evidence, we continue to predict that diamond price gains could moderate later this year, followed by a recovery in 2008.

 

The IDEX Online Diamond Price Index

The IDEX Online Diamond Price Index is a real-time index derived from actual asking prices in 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 Online 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 Online Research. The e-mail address is diamondprices at idexonline dot com.