(IDEX Online) - Polished diamond prices continued to rise in May 2011, according to the IDEX Online Polished Diamond Price Index. Based on average prices during the month, polished diamond prices have not only surpassed their prior record levels set in August 2008, but also surpassed the new record set in the prior month – April 2011.

 

Here are the relevant statistics about global polished diamond prices for the month, based on the IDEX Online Polished Diamond Price Index:

 

·        Between May 1, 2011 and May 31, 2011, polished diamond prices rose by about 2.4%, one of the largest increases since the price recovery cycle began near the end of the first quarter of 2010.

 

·        On a month-over-month basis – May 2011 versus April 2011 – polished diamond prices rose by 1.1%, based on average asking prices during both months. This was one of the larger price increases in the past two years.

 

·        On a year-to-year basis – May 2011 versus May 2010 – polished diamond prices rose by 13.4%. This price increase was substantially above prior year-to-year prices increases in the post-recession period, and is surpassed only by the year-to-year increase of 14.5% which occurred in June 2008, when there seemed to be no end to prosperity.

 

·        On a year-to-date basis from January 1, 2011, through May 31, 2011, global polished diamond prices have risen by 12.5%, based on a comparison of polished diamond prices on the first day of the year versus the last day of May. If monthly average prices are used, year-to-date polished diamond prices are up about 10% or so, suggesting that polished diamond prices could rise by a low-to-mid 20% range this year, if current trends persist.

 

Polished diamond prices have been driven higher by several factors:

 

·        Rough diamond prices continue rising. As rough diamond prices rise, polished diamond prices will also increase, though there is often a lag.

 

·        Consumer demand for diamond jewelry has shown a remarkable recovery over the past year. Retailers have generally been able to implement price increases without encountering consumer resistance.

 

o       In the U.S., jewelry sales have shown a solid, consistent rebound throughout most of 2010, with intensifying demand during the all-important holiday selling season of November-December 2010. Preliminary jewelry sales for the first several months of 2011 confirm that these trends have continued into this year.

 

o       In China, diamond demand has been showing consistent growth.

 

o       In India, demand for smaller diamonds is especially strong. This showed up in the sharply stronger demand trends for one-half and one-carat diamonds which were posted earlier this year.

 

·        Diamantaires have raised prices in an effort to recover financially from the devastating impact of the long and deep recession that hurt the diamond and jewelry industry.

 

·        Diamond demand at the early spring diamond and jewelry shows has been strong. Forecasters are calling for solid demand during the JCK show currently underway in Las Vegas.

 

The graph below summarizes monthly polished diamond price trends over the past two years, based on the IDEX Online Polished Diamond Price Index.

 

Source: IDEX Online Research

 

Polished Diamond Prices Rose in an Undulating Mode All Month

The lowest polished diamond prices occurred earlier in the month, and the highest prices occurred later in May, as the month came to an end. During the month, prices waxed and waned, similar to undulating waves of the ocean.

 

Prices rose sharply during the final few days of May, but have pulled back slightly in early June.

 

At the end of the month of May, the IDEX Online Polished Diamond Price Index stood at 134.2. In the early days of June, it was just over 133, but it appears to be energized to move higher.  

 

Month-to-Month Polished Diamond Prices Strong

When polished diamond prices are compared between May and April – based on the average price for the month – prices rose by a solid 1.1% in May. This gain was more in line with historical patterns than March or April’s price surge.

 

Source: IDEX Online Research

 

On an annualized basis, the May month-to-month price increase would be about 13%. While this annualized rate is much smaller than the price surge in March and April, it is not sustainable for the long term. If it continues, it would create a price bubble just waiting to burst. Further, it could choke off consumer demand.

 

Year-to-Year Polished Diamond Prices Up Solidly

Polished diamond prices in May 2011 rose by 13.4% from the same month a year ago, based on average prices during the month. Year-to-year comparisons are important because they take the seasonality out of diamond demand trends. In addition, they provide a longer term view of trends, which are almost always less volatile than month-to-month comparisons.

 

The graph below shows that May’s polished diamond price increase of 13.4% is well above gains over the past year, with the exception of price surges in March and April. This suggests that prices in the early phase of the recovery are rising at triple the long term growth rate of polished diamond prices – in the 3-4% range annually.

 

Source: IDEX Online Research

 

Prices Up for All Sizes of Polished Diamonds

Prices were mixed in May 2011 the key sizes of diamonds, with some prices rising while others fell. The prices of smaller stones rose substantially, while stones two carats and larger posted either smaller increases or modest declines in price. Market demand for small stones has surged in recent weeks.

 

The graph below shows polished diamond price trends on a month-to-month basis – May 2011 versus April 2011 – for key diamond sizes.

 

Source: IDEX Online Research

 

Polished diamond prices in May were up strongly for most size of diamonds, on a year-to-year comparison. Diamonds one carat and smaller posted sizable price gains, while prices of three and four carat diamonds also rose sharply. Price gains were more modest for 1.5, 2.0, and 5.0 carat gemstones.

 

Source: IDEX Online Research

 

The graph below summarizes three years of prices for key polished diamond gemstone sizes and qualities. After being relatively flat for more than a year, prices are clearly edging higher.

 

 

Source: IDEX Online Research

 

Outlook: Polished Diamond Prices Headed Higher

There are a number of positive factors – and few negative factors – that are affecting polished diamond prices in the current market. As a result, we expect prices of polished diamonds to continue to rise.

 

We expect to see moderating price inflation later in 2011, as demand returns to more normal levels. Longer term, we’d expect to see polished diamond prices rise by 3-4% annually.

 

The pre-recession peak for diamond prices occurred in August 2008. Since prices began recovering about a year ago, the IDEX Index has trended solidly upward. During May, daily prices for polished diamonds had consistently exceeded the former peak price levels achieved in August 2008. It is highly likely that polished diamond prices will continue to set new records later this year.