(IDEX Online News) - Global polished diamond prices slipped during the final week of October, after holding relatively steady during the early part of the month. Prices have in fact declined even further due to the weakening of the dollar.

 

The IDEX Online Polished Diamond Price Index averaged 117.8 for the month of October, ending the month at 117.2, and has remained near that level in the early days of November.

 

The IDEX Online Global Polished Price Index decreased a modest 0.2 percent from September and increased a strong 8.4 percent than the average for October 2009.

 

Uncertain demand for polished diamonds, especially in advance of the upcoming holiday season in the U.S. market, appears to have caused retailers to cancel backup orders for diamond jewelry. As a result, diamond suppliers with excess goods have been forced to reduce prices in an effort to move inventory.

 

It is clear that prices started softening during the final week of the month Source: IDEX Online

 

Weak U.S. Dollar Also Hurts Diamond Values

There’s more disturbing news. Globally, diamonds are traded in U.S. dollars. Since the beginning of the year, the U.S. dollar has lost at least 5 percent of its value against a basket of diamond currencies. As a result, real prices of diamonds began to fall at least two months ago, when the U.S. dollar’s decline commenced.

 

On a constant currency basis, IDEX Online Research estimates that global polished diamond prices in the past couple of months have fallen by at least 6 percent or more from levels earlier this year, on a constant currency basis.

 

The U.S. dollar against a basket of diamond currencies. While the U.S. dollar is still up slightly against the Euro, it is down against all of the other major diamond currencies this year Source: IDEX Online

 

Rising Gold Price Hurts Real Diamond Prices

The U.S. dollar has weakened substantially against the price of gold. Since January, the price of gold has risen by 24 percent from $1,099 to $1,360, though it was slightly higher in mid-October. This means that the value of the U.S. dollar has fallen a substantial 24 percent when compared to the global currency of gold.

 

Weak Diamond Prices: IDEX Online Issues Early Warning

The IDEX Online Global Polished Price Index, which is based on real-time trading data, shows that polished diamond prices are softening. In contrast, some other polished diamond price information published by other services suggests that prices are “stable.”

 

Why this dichotomy? IDEX Online Research reports diamond prices in real time posted by diamond suppliers. There are no “market adjustments.” IDEX Online neither owns nor trades diamonds.

 

Demand in A Few Markets Remains Relatively Stable

Globally, the uncertain economy has had a negative impact on demand for polished diamonds and diamond jewelry. Not only has the economic recovery been characterized by spikes and dips in demand, but the economy is taking far longer to rebound than in prior recovery cycles. As a result, diamantaires are getting mixed signals from the market, with no firm trend or pattern emerging.

 

While demand for diamonds and diamond jewelry remains stable in two emerging markets – China and India – neither of these markets has a significant impact on global polished diamond demand or prices. These two markets together account for an estimated 10 percent or less of total global demand (by value) of polished diamonds. In contrast, the U.S. market consumes roughly 45 percent, by value, of the world’s polished diamonds and diamond jewelry.

 

Global polished diamond prices for the past two years based on the IDEX Online Polished Diamond Price Index Source: IDEX Online

 

Short-Term Forecast Uncertain

The IDEX Online Research survey of retail jewelers shows that the average ticket for an independent specialty jeweler dropped by 9-10 percent during the recession, and it has shown no recovery. The only good news is that the number of sales transactions is on the upswing.

 

Forecasts for near term diamond demand are less rosy. We are projecting that diamond jewelry sales could be down by as much as 5 percent in the U.S. during the November-December holiday season, with unit sales down as much as 15 percent.

 

Instead of diamonds and diamond jewelry, consumers have focused their spending on less expensive silver jewelry and lower-karatage gold jewelry. Popular-priced fashion jewelry – mixed metals and a variety of colored gemstones – seem to appeal to today’s jewelry shopper.

 

Until demand for diamond jewelry solidifies at the retail level in the U.S. market, polished diamond prices are expected to trade in a narrow range, with little support. Clearly, there is not enough demand to push prices higher. Unfortunately, the risk remains high for downside price movement. 

 

The full analysis of the polished diamond prices is available to IDEX Online Research subscribers and IDEX Online members here. Click here for more information on how to subscribe or become a member.