(IDEX Online News) – That quiet hissing sound you hear is the air slowly seeping from the polished diamond price bubble that has built up over the past several months. During August, global polished diamond prices softened modestly for the first time since the current bull market for diamonds began in late 2009.

 

The full analysis of the polished diamond prices is available to IDEX Online Research subscribers and IDEX Online members here.

 

The IDEX Online Global Polished Diamond Price Index, widely acknowledged as the most transparent source of polished diamond prices, fell by 0.3 percent in August, when compared to July. On a year-over-year basis, however, diamond prices were up 24 percent, though this was a smaller gain than in the previous month.

 

Here are highlights of prices for polished diamonds during August 2011:

 

·        The IDEX Online Global Polished Diamond Price Index averaged 146.3 in August, slightly below July’s record level of 146.7.

 

·        The IDEX Online Index stood at just over 145 at the beginning of September, and there appears to be little demand to support a new surge in polished prices near term.

 

·        Polished diamond prices in August were down by a modest 0.3 percent over July, based on the average prices for both months.

 

·        Prices declined 1.5 percent between August 1 and August 31. At the beginning of the month, the IDEX Online Index stood at 147.6; it finished at 145.4 at the end of the month.

 

·        Polished diamond prices in August were up 21.6 percent for the first eight months year-to-date in 2011.

 

·        Polished diamond prices in July were up 24.1 percent versus August of 2010.

 

·        Polished diamond prices were mixed, with the price of larger diamonds – 4 carat and larger – declining more than smaller diamonds of 2 carat and smaller.

 

The graph below summarizes polished diamond prices based on the IDEX Online Polished Diamond Price Index for the past twenty-four months.

Source: IDEX Online

Polished Diamond Price Outlook: Bursting Bubble or Just A Pause to Refresh?

Last month, we asked the question, “How high is up?” We followed it with a warning about price bubbles that often form in a recovery period.

 

If we had the answer to this question “how high is up?” we’d be on a beach in Tahiti, rather than speculating, along with all the other diamantaires, about where polished diamond prices are headed.

 

Here’s what we know:

 

·        While De Beers and many others have kept rough diamond prices high, after-market trading indicates that rough diamond prices have fallen by as much as 20 percent. Further, a recent BHP Billiton tender resulted in sharply lower prices for rough gemstones. If the cost of materials – rough diamonds, in this case – decline, then polished prices will likely continue to soften.

 

·        However, as long as consumer demand remains strong, polished prices won’t fall by much.

 

·        Longer term, the supply of rough diamonds appears to be stable, though flat, while demand is expected to continue to rise. This is a perfect formula for long term inflationary pricing at all levels in the diamond pipeline.

 

As we said last month, we urge caution: price cycles are like ocean tides – they rise and they fall.

 

Polished diamond prices historically rise rapidly early in a recovery cycle – which began near the end of the first quarter of 2010 – and then increase at a slower pace, in line with the long term annual increase of 3-4 percent.

 

In the current period, we expect to see increased volatility in the diamond market, though not as volatile as the financial markets. As long as the diamond market remains closed, it will not be subject to the whims of day traders and speculators. When diamonds start trading on the open market, prices will whipsaw. Get ready: we are edging closer to opening the diamond trading markets to those who have no stake other than making a quick profit, without regard to anyone else in the market.

 

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.