Global polished diamond prices continued to recover in May, extending a trend that began at the end of 2009. The IDEX Online Global Polished Diamond Price Index stood at an average of 116.5 for the month of May 2010. This is a 7.1 percent increase over year ago and a 1.6 percent rise over the average for April.

 

While these percentage increases in polished diamond prices are above long term historic trends, they represent gains that are reasonable in a recovery cycle, such as the industry is currently experiencing.

 

Three major factors are bolstering polished diamond prices:

 

·        Reports from the U.S. market indicate that the recovery in jewelry demand which began earlier this year is sustainable. Specialty retailers such as Sterling Jewelers and Tiffany have reported strong gains in sales. Further, the U.S. Department of Commerce reported that specialty jewelers’ sales in March 2010 (the latest data) had recovered to nearly the level of March 2008, near the peak of the most recent bull cycle for jewelry demand.

 

·        Several publicly held specialty jewelers have raised retail prices in recent months, and they have indicated that they are ready to raise prices further prior to the all-important 2010 holiday selling season. Emboldened diamond suppliers are using this move by retailers as an opportunity to raise wholesale prices.

 

·        Pressure by diamond polishers that have been paying quickly rising rough diamond prices is slowly causing resisting buyers to yield and pay more for loose polished goods.

 

Six-Month Price Trend Remains Positive

After bottoming in 2009 at around 108, the IDEX Online Global Polished Price Index has risen every month since late last year. The graph below summarizes the average diamond price index by month for the past two years. Further, prices have risen at a steady, consistent level. This indicates that fundamental underlying demand is responsible for most of the price gains.

 

If suppliers tried to raise prices on a speculative basis, we would see the index lurch up, followed by a fall-back. That has not happened in this cycle, and its boosts our confidence that prices are headed higher as the year progresses.

Source: IDEX Online Research

 

Month-to-Month Polished Diamond Prices Show Solid Gain in May

The IDEX Online Global Polished Price Index averaged 116.5 for May 2010, a 1.6 percent increase over the average for April, as the graph below illustrates. May was the sixth consecutive month that polished diamond prices have risen on a month-to-month basis.

 

Source: IDEX Online Research

 

Year-to-Year Polished Diamond Prices Up Sharply

The IDEX Online Global Polished Price Index for May 2010 – 116.5 – was 7.1 percent higher than the average for May 2009. May was the fourth consecutive month that prices have risen on a year-to-year basis.

 

Source: IDEX Online Research

 

Daily Prices Stable for Polished Diamonds

At the beginning of the second week of May, polished diamond prices spiked upward, and then held steady in a very narrow trading range for the balance of the month. We view this is evidence that the higher prices are likely to hold. We further believe that prices are building a solid foundation which will provide a springboard for higher polished diamond prices later this year.

 

The graph below summarizes daily price movement of the IDEX Online Global Polished Price Index.

 

Source: IDEX Online Research

 

Prices Recover for Larger Diamonds

There’s an old expression, “The bigger they are, the harder they fall.” That’s what happened to diamond prices for 3 carat and larger stones during the recessionary environment of 2009: those stones prices fell much further and faster than prices for stones two carats and smaller.

 

However, during May, prices of four and five carat diamonds showed strong gains. Unfortunately, though, they are still priced just below the level of a year ago. In short, prices have just about recovered, but are still dramatically below peak levels in mid-2008.

 

The graph below illustrates the strength of the recovery in prices of four and five carat diamonds during May 2010, when compared to the prior month of April 2010.

 

Source: IDEX Online Research

 

On the other hand, prices for these large stones – four and five carat diamonds – remains just below last year’s depressed levels, as the graph below illustrates.

 

Source: IDEX Online Research

 

The graph below summarizes three years of price movement of polished diamonds by various key sizes.

 

Source: IDEX Online Research

 

IDEX Online Index Summary Table

The table below summarizes the IDEX Online Index by month for the past three years.

 

Source: IDEX Online Research

 

Outlook: Prices Rising

We strongly believe that polished diamond prices will continue to rise from current levels. Not only is there solid fundamental demand from shoppers, but rough diamond prices are also rising. With pricing pressure coming from both ends of the diamond pipeline, prices in the middle have no way to go but up.