(IDEX Online News) – Global polished diamond prices slipped again in October for the third consecutive month, according to the IDEX Online Global Polished Diamond Price Index, but showed some vitality near the end of the month.

 

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

 

Between October 1 and October 26, polished diamond prices were on a downhill slope. However, on October 27, prices strengthened, a trend that has held through the first few days of November.

 

Why did diamond prices move decidedly higher on October 27? There are two key factors that appear to have had an impact on diamond prices that day:

 

·        The U.S. government announced that third quarter GDP rose by an unexpectedly strong 2.5 percent. This was above most analysts' forecasts, and it was much stronger than the meager 0.4 percent gain in the first quarter and the 1.8 percent increase in the second quarter. The financial markets reacted positively, and some of this euphoria spilled over into the diamond markets.

 

·        Diamantaires, emboldened by the prospects of an improving economy, significantly increased their offerings of diamonds with a higher per-carat price during the final week of October. The number of diamonds available for trading rose by a dramatic 5 percent on the IDEX Online trading floor around October 27. Diamond demand and economic cycles track closely, and diamantaires felt that they could raise prices in the face of an improving economy – or at least with the prospects greatly diminished for a double-dip recession.

 

The IDEX Online Global Polished Diamond Price Index, widely acknowledged as the most transparent source of polished diamond prices, fell by 1.6 percent in October, when compared to September, based on average prices during the month. On a year-over-year basis, however, diamond prices were up almost 20 percent, though this was a smaller gain than the past three months.

 

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

 

·        The IDEX Online Global Polished Diamond Price Index averaged 141.0 in October, the third consecutive monthly decline, since diamond prices peaked in the current cycle in July.

 

·        Polished diamond prices in October were down by 1.6 percent versus September, based on the average prices for both months.

 

·        Prices increased about 1 percent between October 1 and October 31, after the spike in prices during the final week of the month.

 

·        Polished diamond prices in October 2011 were up 19.7 percent versus October of 2010.

 

·        One-half carat and five-carat rounds showed greater price deflation than other sizes. There was no clear pattern of diamond price deflation by diamond carat size.

 

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: Uncertainty Near Term

 

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

 

The global economy is in an uncertain period. The major, credible economic forecasters are “on the fence” about whether we are headed for a double-dip recession, though new data from America indicates that its economy may be “stable to mending.”

 

Here’s what we know:

 

·        While De Beers and many others have kept rough diamond prices high, rough diamond prices have fallen significantly in the secondary market. If the cost of rough diamonds decline, then polished prices will likely continue to soften.

 

·        However, as long as consumer demand remains strong, polished prices won’t fall by much. While diamond demand in the U.S. market remains relatively tepid, demand in emerging economies such as China is strong.

 

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

 

Like we have said in the past, 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 to non-diamantaires, it will not be subject to the whims of day traders and speculators. When diamonds start trading on the open market, prices will whipsaw.

 

 

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.