(IDEX Online) – Polished diamond prices slipped by about three-tenths of a percent in January 2012, when compared to December 2011, according to the IDEX Online Polished Diamond Price Index.

 

Polished diamond trading showed little energy in January.

 

The IDEX Online Index finished at 140.1 on January 31, up slightly from 139.2 at the beginning of the month. However, this is more of an anomaly resulting from mix changes in the market than any “real” price increase. Further, the IDEX Online Index averaged 138.8 in January, far below the record daily high of 148.1 reached in late July, before the current price slide began. Further, this was the sixth consecutive month that the IDEX Online Index showed a decline.

 

Aside from the pricing anomaly near the end of the month, polished diamond prices were on a downhill slope during January, as the graph below illustrates. 

Source: IDEX Online

Longer Term View Confirms Sluggishness of Diamond Prices

The graph below illustrates global polished diamond prices for the past twenty-four months. After posting a solid recovery in the post-recession period, polished diamond prices have trended slightly lower since the middle of 2011.

Source: IDEX Online

Uncertainty Has Created a Choppy Polished Diamond Market

Why have diamond prices been slipping? Several factors came together during the second half of 2011 that continue to have a negative impact on the industry and consumer demand today, including the following:

 

·        Tightening credit lines for diamantaires, especially in India.

·        Sharply rising gold prices that have scared consumers away from buying any jewelry.

·        S&P’s downgrading of the U.S. credit rating has created uncertainty.

·        A flare-up in the Euro debt crisis has added to economic uncertainty.

·        Slowing growth in India, with a sharp decline in the value of the rupee.

·        Slowing growth in China, which could hurt consumer demand for diamonds.

 

Month-to-Month Polished Diamond Prices Soft

When polished diamond prices are compared between January 2012 and December 2011 – based on the average price for the month – prices slipped by three-tenths of one percent. This decline was the sixth monthly drop since prices peaked in July 2011.

 

The graph below illustrates month-to-month price trends for polished diamonds. While there was some softness in mid-2010, price gains had been quite strong through July 2011.  

Source: IDEX Online

On an annualized basis, the January month-to-month price decrease would be less than four percent.

 

Year-to-Year Polished Diamond Prices: Rate of Inflation Continues To Slow

Polished diamond prices in January 2012 rose by a 15.3 percent from the same month a year ago, based on average prices during the month. Since July, the year over year comparisons have been slowing.

 

The graph below shows that December’s polished diamond price increase of 15.3 percent is well above some prior gains over the past year, but below the record increase for July. Further, it reflects a slowing year-to-year price comparison.

Source: IDEX Online

Diamond Prices Mixed By Size

Month over month prices were mixed by size during January. While the “average” diamond price dropped by 0.3 percent in January, this is a situation where the “average” is misleading. When we look beyond the “average,” we find a market with substantial unevenness.

 

Prices for one and one-half carat and four-carat polished diamonds rose, while prices declined for other major categories. Interestingly, the decline was quite uneven, reflecting high levels of uncertainty about prospects for polished diamond demand in 2012.

 

The graph below shows polished diamond price trends for key diamond sizes based on prices during January 2012 versus December 2011.  

Source: IDEX Online

On a year over year comparison, polished diamond prices in January were ahead for the key diamond sizes. Prices for half-carat diamonds and four-carat gemstones rose sharply, while price gains were more modest for 1.0, 1.5, 3.0 and 5.0-carat gemstones. This pricing disparity is more or less 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, most polished diamond prices have shown a downward bias for the past five months.

Source: IDEX Online

Outlook: Near-Term Uncertain; Long Term Bright

There is above average uncertainty in the global markets as the diamond industry moves into 2012.

 

·        The good news: while the U.S. economy has shown only a modest post-recession recovery, most economists are predicting that 2012 economic gains will modestly outpace 2011’s tepid growth. The American market accounts for just under half of global demand for diamonds and diamond jewelry. There is a high correlation between economic cyclicality and diamond demand. Therefore, if the U.S. economy posts improvement in 2012, it is reasonable to assume that polished diamond demand will strengthen in this market.

 

·        The bad news: other global markets are pinched. In Europe, the consensus is that the European Union will slide into a recession in 2012. Further, its debt crisis could be a drag on other nations’ growth, especially if Europe’s pace of imports slows. In China, the frantic economic growth of the past decade is slowing, though economists are calling for a soft landing in 2012.

 

·        The OECD – the Paris-based think tank – suggests that the global economy is poised for a modest slowdown in 2012. This will have a dampening impact on polished diamond demand.

 

Longer term, polished diamond prices appear to be headed higher due to several factors:

 

·        Emerging markets, including China and India, are poised for long-term growth. As consumer wealth builds in these markets, shoppers will be spending more on jewelry.

 

·        Rough diamond supplies appear to be flat for the next decade or longer. With flattish supply, but rising demand, the forces of capitalism will push diamond prices higher.