(IDEX Online) – Polished diamond prices increased a strong 1.4 percent in January compared to December 2010 and an impressive 9.3 percent from January 2010, according to the IDEX Online Global Polished Price Index.

 

The IDEX Online Global Polished Price Index averaged 120.4 in January compared to December’s 118.7, the largest month-to-month polished diamond price increase in almost a year.

 

Source: IDEX Online Research

 

On a month-to-month basis, prices for virtually all sizes of diamonds moved up, with the exception of half-carat diamonds and smaller. We find this interesting; since retail jewelers report that there is plenty of demand for fashion diamond jewelry that represents “flash for cash,” items with a lot of sparkle, or many small diamonds.

 

The graph below summarizes month-to-month price action for polished diamonds of various sizes.

 

Source: IDEX Online Research

 

YoY Polished Diamond Prices Up Due to Relatively Easy Comparisons

The IDEX Online Global Polished Diamond Price Index for January 2011 was a strong 9.3 percent higher than the average for January 2010, 110.1. This was the largest year-to-year price gain since late 2008 – more than two years ago.

 

Source: IDEX Online Research

 

January was the twelfth consecutive month that polished diamond prices have risen on a year-to-year basis. After slowing price momentum during most of the second half of 2010, prices strengthened in December and continued to be even stronger in January.

 

The last time polished diamond prices declined on a year-to-year basis was in January 2010. In February, they began to recover and so January 2011 prices are the final month of comparisons to negative price movement. Going forward, we would expect to see smaller year-to-year price increases. We believe that year-to-year price comparisons are important, because demand for polished diamonds is seasonality.

 

On a year-to-year basis, the increase in polished diamond prices by carat weight was mixed. Larger diamonds posted a greater price increase than smaller goods. Retail jewelers report that statement diamonds in the three-carat range are in strong demand; the price action by diamond carat weight reflects that retail trend, as the graph below illustrates.

 

Source: IDEX Online Research

 

Long Term View Provides Picture of Price Strength for 3-Carat Diamonds

We have noted that three-carat diamonds showed particular price strength in January. A longer-term view confirms this trend. The graph below summarizes three years of price movement of polished diamonds by various key sizes. The blue line illustrates prices of three-carat diamond.

Source: IDEX Online Research

The Road to 2011

Beginning in mid-2010, prices of polished diamonds changed very little on a month-to-month basis because of uncertainty about consumer demand. Diamond suppliers were unable to raise prices – despite higher rough diamond prices – because retail jewelers were unwilling to pay higher prices for diamonds and diamond jewelry in an uncertain economic environment.

 

In part, prices tend to move in an often unpredictable pattern during an economic recovery cycle, due primarily to the “fits and starts” associated with reigniting a sputtering economy. When it became clear in early December that demand for jewelry in the all-important holiday selling season was strong – and would likely exceed most expectations – prices for polished diamonds began to move higher.

 

Outlook: Polished Diamond Prices Headed Higher

We believe that polished diamond prices will likely react to near term demand: after a strong holiday selling season and with the global economy on the mend, prices seem to be destined to rise further in 2011.