(IDEX Online) – After rising consistently since late 2009, global polished diamond prices have stalled and begun to slip based on the IDEX Online Global Polished Diamond Price Index.

 

The IDEX Online Index finished at 141.2 on September 30, down from a record daily high of 148.1 reached in late July. At the beginning of September, the IDEX Online Index stood at 145.2, its highest level for the month.

 

For the entire month of September, the IDEX Online Index averaged 143.3. The IDEX Index stood at 100 in mid-2004.

 

Throughout the month of September, polished diamond prices showed weakness, with a sharp drop on September 15.

 

The graph below illustrates global polished diamond prices for the past twenty-four months.

 

Source: IDEX Online

 

Polished Diamond Prices Slackened In A Single Step in September

The highest polished diamond prices occurred at the first of the month, with the IDEX Online Index at 145.2 on September 1. On September 15, polished diamond prices dropped to 141.9 from the prior day’s 144.5. For the balance of the month, prices struggled to trade in the 141-142 index range. By the end of September, prices had declined to 141.2. Since then, in the opening days of October, polished diamond prices have held more or less steady, though there is no strong support at the current level.  

 

The graph below illustrates the daily average price of polished diamonds during September 2011.  

 

Source: IDEX Online

 

Month-to-Month Polished Diamond Prices Soft

When compared to August, prices slipped by 2.1 percent in September – based on the average price for the month. This decline was the first sharp monthly drop since late 2009, when polished diamond prices bottomed as the recession was officially declared over (though it would be a while before the diamond industry would be convinced that a recovery was underway). Two months ago – in July – the month-to-month increase in diamond prices was 5.6 percent: this out-sized gain should have been a sign that we were nearing the top of a price bubble.

 

The graph below illustrates month-to-month price trends for polished diamonds. While there was some softness in mid-2010, prices had been quite strong until two months ago – August.

  

Source: IDEX Online

 

If this price decline gains momentum, it will signal the end of the current bull market for polished diamonds, and the price bubble will deflate rapidly, perhaps to more normal, historic levels.

 

Our biggest worry is the timing of the potential kink in the demand curve: at some point, consumers simply won’t pay higher prices for diamonds. They will switch their preference to anther gemstone – or worse, some other luxury item – and it will be difficult for the diamond market to regain consumers’ share of spending.  

 

Year-to-Year Polished Diamond Prices: Rate of Inflation Slows

Polished diamond prices in September 2011 rose by 21.4 percent from the same month a year ago, based on average prices during the month. This gain was eclipsed only by the 25.0 percent rise in July and a 24.1 percent gain in August, and it reflects the price bubble that has built up over the past twelve months. 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 usually less volatile than month-to-month comparisons.

 

IDEX Online Research has never seen diamond prices rise this sharply in recent history. In the heady days of early and mid-2008, just before the Great Recession gripped the jewelry and diamond industry with its “take no prisoners” bone-crushing decline, year-over-year prices were rising in the low-to-mid teen range. By mid-2009, polished diamond prices were declining by mid-teen levels, but turned positive at the beginning of 2010, and perked up significantly by mid-year 2010. Since then, there has been no slowdown in polished diamond price increases, until August.

 

Source: IDEX Online

 

Prices Down for All Key Sizes of Round Polished Diamonds

Month-to-month, prices were down in September for key sizes of round diamonds. The price deflation by size of polished diamond was mixed. Gemstones of one-carat and five-carat size showed the greatest month-to-month price decline, while three-carat stones showed the least price weakness.

 

Source: IDEX Online

 

On a year-over-year comparison, polished diamond prices in September were up solidly for most size of diamonds. Round diamonds one carat and smaller posted sizable price gains, while prices of four-carat diamonds also rose sharply. Price gains were more modest for 1.5, 2.0 and 5.0-carat stones. This pricing disparity is similar to price trends over the past few months.  

 

Source: IDEX Online

 

The graph below summarizes three years of prices for key polished diamond gemstone sizes and qualities. After rising slowly since mid-2010, polished diamond prices have shown a downward bias for the past two months.

 

Source: IDEX Online

 

Outlook: Polished Prices Poised for a Pause

There are a number of factors affecting polished diamond prices in the current market. We expect prices of polished diamonds to continue to rise over the long term, after a pause near term.  

 

Historically, polished diamond prices have risen by 3-4 percent annually. However, due to the lack of new supply coupled with increasing demand from new markets, it appears that diamond prices – over the long term – may continue to rise above their historic trends.

 

We note, with caution that these seemingly “new” trends often turn out to be unsustainable. While the long-term price and demand outlook for diamonds remains positive, diamantaires must remember that diamonds are a discretionary consumer purchase. At some point, shoppers may find a less-expensive alternative, and diamond demand will wane.

 

The table below summarizes the average price of polished diamonds, using the IDEX Online Polished Diamond Price Index. The pre-recession peak for diamond prices occurred in August 2008. Since prices began recovering about a year ago, the IDEX Online Index has trended solidly upward. The new, latest record price level occurred in July, far exceeding June’s record level. In August and September, however, polished diamond prices pulled back somewhat.

 

Source: IDEX Online