Global polished diamond prices were up solidly in July, continuing a trend which began earlier this year. While price gains moderated briefly in the late spring, polished diamond prices since then have been up strongly, with July posting the largest year-over-year increase this year.

 

On a year-over-year basis, polished diamond prices rose a solid 3.0 percent in July 2007 versus the same month a year ago. In a month-to-month basis, polished diamond prices rose 0.6 percent in July versus June 2007. This was the second largest month-to-month increase this year.  

 

Two major factors continue to drive polished diamond prices higher: 1) rising rough diamond prices; and 2) solid consumer demand in virtually all markets around the globe. In the U.S. market, which consumes roughly half of all diamond jewelry in the world by value, inflation has moderated and gasoline prices have declined seasonally, rather than rising as in past summers. As a result, consumers have more money to spend on discretionary items. While there is some concern about consumer credit quality in America, it apparently has not affected jewelry demand significantly.

 

Since economic cyclicality and diamond demand typically correlate closely, we believe that the current strong diamond price trends are foretelling continued solid economic growth around the world. Thus, it appears that economists are correct with their recent upwardly revised economic growth forecasts: global economic gains may moderate this year, but the global economy won’t be nearly as soft as forecasters were predicting earlier this year.

 

It is possible that global polished diamond sales at retail could rise by at least six percent this year and perhaps more. That would suggest that diamond price inflation could hit 2-3 percent this year, with a 3-4 percent rise in unit sales. In short, we are forecasting a good year for diamantaires in 2007.

 

For the month of July 2007, average global polished diamond prices rose by 0.6 percent versus average diamond prices during June 2007. On an annualized basis, this suggests that diamond prices could rise by +6-7 percent during 2007, a level that is not sustainable. The IDEX Online Polished Diamond Price Index, calculated on the average daily prices during the month of July 2007, stood at 113.08 for the month, up from 112.40 for the month of June. Prices early in the month of July were somewhat more volatile than at the end of the month, when prices rose relentlessly every day. Similar to prior months, the IDEX Online Polished Diamond Price Index closed at a record level – 113.79 – at the end of July. The IDEX Online Polished Diamond Price Index stood at 100.00 in July 2004. We believe that diamond prices will continue to rise for the foreseeable future, based on current economic and consumer trends.  

 

On a year-over-year basis, global polished diamond prices rose by a very strong 3.0 percent in July 2007 versus the same month a year ago. If diamond prices continue to increase at this annualized rate, it would be one of the largest annual price increases in the past two decades for polished diamonds. Despite unrelenting rough diamond price increases, it is unlikely that polished diamond prices will continue to rise at the current annual rate, since the polished diamond industry remains highly fragmented with little pricing power. Further, jewelry retailers are still reeling from price hikes in 2005 and 2006 related to higher precious metals costs. While consumers demand for diamonds remains solid, retailers will resist higher polished diamond prices and will find sources that will discount prices. The IDEX Online Polished Diamond Price Index stood at 113.08 in July 2007 versus 109.75 in July a year ago.

 

Polished Diamond Prices Rise in July

Global polished diamond prices were up solidly in July 2007, continuing trends which began earlier in 2007. Earlier in the spring, diamond price increases paused, but only briefly. However, it appears that diamond prices are poised to continue posting solid gains this year.

 

Activity in the U.S. wholesale polished diamond market continues to be moderate, but wholesale markets elsewhere around the world are experiencing brisk trading and strong demand for polished diamonds. It is important to understand what is happening in the U.S. wholesale diamond markets: American consumer demand remains very strong for diamonds and diamond jewelry. However, U.S. polished suppliers continue to move their businesses out of the country to other regions of the world where costs are lower and quality may be higher. Thus, while the diamond trading market in the U.S. appears to be contracting, imports of finished goods remain strong into America.

 

Further, the diamond markets appear to be telling us that the global economy is stronger than early forecasts had predicted. Diamond demand is usually a leading indicator for economic cyclicality: diamond demand – along with diamond prices – typically are among the first retail categories to weaken, as the economy begins to soften. Further, diamond demand is one of the last categories to strengthen after an economic slowdown. Based on current diamond price and diamond demand trends, it is unlikely that the global economy will cool much in 2007.

 

IDEX Online Diamond Price Index Up Strongly in July

The graph below summarizes the IDEX Online Polished Diamond Price Index from the beginning of 2006 through July 2007. This graph represents the composite average prices of all diamonds traded at the wholesale level in July 2007. It is clear that diamond prices are posting solid gains, especially during 2007.

 

IDEX Online Polished Diamond Price Index 2006 - 2007 Source:  IDEX Online Research

Month-to-Month Prices Rise 0.6 percent in July

The graph below summarizes month-to-month changes in global diamond prices for the past nineteen months, since the beginning of 2006. With the exception of May, polished diamond prices have shown solid gains during almost every month of 2007.

 

The percentage change comparisons on the graph are based on the daily average prices during the month of all sizes and qualities of polished diamonds. The percentage change shown is based on each month’s average price versus the prior month’s average price (e.g. July 2007 versus June 2007). 

 

Polished Diamond Price Trends Percent Change Month-to-Month Source:  IDEX Online Research

 

Year-to-Year Diamond Prices Up 3 percent in July

After some softening earlier in the spring, polished diamond prices have continued to show solid gains in July on a year-to-year basis, compared to the same month a year ago. The graph below summarizes year-to-year monthly polished diamond prices for the global market since the beginning of 2006. Clearly, diamond prices reflect a solid uptrend.

 

Comparisons are based on the daily average prices during the month versus the same month a year ago (e.g. July 2007 versus July 2006). The year-to-year comparison takes into account the seasonality of polished diamond demand and prices.

 

Polished Diamond Price Trends Percent Change Year-to-Year Source:  IDEX Online Research

 

Diamond Demand Favors Large Sizes

Jewelers say that their customers want larger, better quality diamonds. Recent price trends for polished diamonds confirm this trend. While there has been some volatility over the past few months, it is clear that prices are rising significantly faster for larger stones – generally larger than two-three carats – and holding fairly steady for smaller carat sizes.

 

The graph below summarizes the price changes for key sizes of polished diamonds on a month-over-month basis: July 2007 versus June 2007. These six stone sizes represent about 30 percent of the trading market by value.

 

Polished Diamond Price Trends by Size Average Price - July 2007 vs June 2007 % Change Month-to-Month These Six Sizes = 30% of the Market Source:  IDEX Online Research

On a year-to-year comparison, polished diamond prices showed a more predictable bias: large stone prices in the four-to-five carat range rose much more sharply than prices of stones in the two-carat range and below.

 

The graph below summarizes polished diamond prices by key sizes; these sizes represent just under one-third of the market, by aggregate value.

 

Polished Diamond Price Trends by Size Average Price - July 2007 vs July 2006 % Change Year-over-Year These Six Sizes = 30% of the Market Source:  IDEX Online Research

 

Diamond Price Forecast: Upward and Onward

In prior months, there was some uncertainty in our diamond demand and price forecast. Economists were indecisive over whether the global economy would soften significantly versus a more serious recessionary environment. Now however, economists have shifted their predictions to suggest that the global economy may remain relatively healthy, though there could be some pockets of weaker economic activity in some regions of the world. Overall, though, forecasters are now suggesting that the Asian, Indian and European economies may post robust growth, more than making up for any potential softness in the American markets.

 

As a result of more favorable economic forecasts, we have raised our outlook for the U.S. jewelry market during 2007. American consumers purchase roughly 50 percent (by value) of all diamonds and diamond jewelry globally. Earlier this year, we were predicting that jewelry sales might rise at an annual rate of 3 percent or so in America in 2007; we are now forecasting a sales increase of 4 percent for U.S. jewelry merchants. It is likely that diamond sales will exceed this annual demand pace. In 2007, U.S. diamond sales were up just over 6 percent; it is possible that diamond sales in 2007 could rise by 4-6 percent.

 

The only losers in this scenario are the retail jewelers. They simply have not been able to raise retail prices fast enough to keep pace with the rising wholesale diamond prices. Thus, while we are now forecasting a relatively robust year for diamonds and diamond jewelry in the U.S. and other world markets, it is likely that retailers’ gross margins are headed for a modest decline again in 2007.

 

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.