(IDEX Online) – Global polished diamond prices inched their way higher in February, after drifting lower for the past six months, according to the IDEX Online Global Polished Diamond Price Index.

 

Polished diamond prices rose by eight-tenths of one percent in February 2012, when compared to January 2012, according to the IDEX Online Polished Diamond Price Index, widely acknowledged as the most accurate and most transparent indicator of global polished diamond prices.

 

The graph below shows that monthly polished diamond prices have begun to move higher, after six months of decline.

Source: IDEX Online Research

Daily Prices Slip, But Recover at End of Month

The price action was uneven in February, with prices slipping for the first three weeks of the month, followed by a rebound in the final week. The IDEX Online Index finished at 140.3 on February 29. During the month, the IDEX Online Index fell to a low of 139.2, before recovering. Since the end of the month, polished diamond prices have continued to show a modest upward trend.  

Source: IDEX Online Research

Some Good News and Lack of Bad News Helps Bolster Diamond Prices

Fundamental trends in the diamond industry point to the probability of higher diamond prices, including the following:

 

·        Business at the Hong Kong International Jewellery Show, Asia’s largest spring jewelry fair, was very good. Demand for loose diamonds was strong and visitor attendance set a record for the show.

 

·        Retail merchants are placing orders and adding to their inventory.

 

The absence of bad news during February also helped instill confidence in diamantaires to implement selected diamond price increases and for retailers to accept them. What do we mean by the lack of bad news? Here are some examples:

 

·        The U.S. economy has posted growth in all of its geographic regions of the country.

 

·        Economic growth in key geopolitical areas around the globe is finally beginning to turn positive, according to the OECD.

 

·        The Europe debt crisis did not deepen, and it may be on the road to resolution.

 

·        Aside from Syria, there is no new “Arab spring” on the horizon.

 

·        North Korea has apparently agreed to a short-term moratorium on development of nuclear weapons.

 

·        The situation in Iran remains tense, but it is mostly loud saber rattling, at least currently.

 

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

Polished diamond prices in February 2012 rose by a 14.5 percent from the same month a year ago, based on average prices during the month. Since last July, the year over year comparisons have been slowing.

 

The graph below shows that February’s polished diamond price increase of 14.5 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 Research

Diamond Prices: Key Sizes Generally Higher in February

Prices edged higher for most – but not all – of the major polished diamond sizes in February versus January.

 

·        Prices for most round diamonds smaller than three carats were slightly higher. However, prices for three- and four-carat round diamonds were lower.

 

·        The surprise: prices of round five-carat diamonds rose sharply, after languishing for several months. Clearly, the “bling” buyers are back in the retail market, after sitting out the recession.

The graph below summarizes monthly price changes for polished diamonds by key sizes.

Source: IDEX Online Research

On a year over year comparison, polished diamond prices in February 2012 were ahead for the key diamond sizes. Prices for half-carat rounds and four-carat diamonds rose sharply, while price gains were more modest for round 1.0, 1.5 and 2.0 carat diamonds. This pricing disparity is more or less similar to price trends over the past few months.

Source: IDEX Online Research

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 showed a downward bias for the past six months until February, when prices began to strengthen.

Source: IDEX Online Research

Outlook: Near-Term Factors Turning Positive

Overall, it appears that there are more positive factors than negative factors that will affect diamond prices, both during 2012 and beyond:

 

·        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 strong 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.

 

·        More good news: It appears that other major global economies are showing signs of growth. The OECD’s Composite Leading Indicators’ positive momentum is being driven primarily by the U.S. as well as Japan, with similar signs emerging in a number of other developed economies such as India and Russia. This is good news for the global diamond industry.

 

·        The offset: The Composite Leading Indicators for the Euro Zone, China, and Brazil continue to point to below-trend economic growth.

 

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

 

·        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. With flattish supply, but rising demand, the forces of capitalism will push diamond prices higher.

 

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 (box). As expected, polished diamond prices were weak during the “Great Recession” which officially ended in mid-2009.

 

Unfortunately, polished diamond prices lagged the general economic recovery, and did not begin to show an upward bias until early 2010. The new, latest record price level (red box) occurred in July 2011. Since then, polished diamond prices have slipped, but still remain at relatively high levels, well above the pre-recession peak.

Source: IDEX Online Research