(IDEX Online) – Global polished diamond prices continued to slip further in August, after weakening in July following a period of relative stability during the first half of 2012.

 

Source: IDEX Online

 

Diamond prices in August basically “flat-lined” as trading slowed due to the summer holiday period for many diamantaires. Essentially, there was no day-to-day price volatility, and prices drifted lower as the month progressed.

 

The IDEX Online Global Polished Diamond Price index, widely recognized as the most transparent and accurate indicator of polished diamond prices, showed the following trends during August 2012:

 

·        Polished diamond prices fell by 2.0 percent in August, when compared to July price levels. The graph below illustrates recent monthly price trends.

Source: IDEX Online

 

·        Polished diamond prices fell by 8.5 percent in August, when compared to August 2011 price levels. This is the second consecutive year-to-year decline – after posting monthly gains for more than two years, and it is a worrisome trend.

Source: IDEX Online

 

·        Daily prices softened throughout the month of August, though there was a brief spike in prices at the end of the period. Since the end of August, prices appear to have held at this slightly higher level, though it is too early to tell if the market is strengthening or simply reflecting increased activity as diamantaires return to their trading offices. Further, it appears that diamantaires were “testing the market.” However, there has been no strong demand from retailers during the recent jewelry shows to suggest that the market may be headed higher. The graph below illustrates daily price movements for polished diamonds during August 2012.

Source: IDEX Online

 

·        Polished diamond prices have fallen 3.6 percent in the eight-month period since the beginning of the year.

 

·        Polished diamond prices for the first eight months of 2012 versus the first eight months of 2011 are up by about 4 percent due mostly to very low prices at the beginning of 2011. This is the only good news related to overall diamond prices.

 

Diamond Prices by Size: Down for Every Major Size

Round cut diamond prices declined for every major size in August, when compared to prices in July. However, the price decline was uneven for four-carat and five-carat rounds stones due to low trading volume. The graph below summarizes month-to-month price changes for polished diamonds by size.

 

Source: IDEX Online

 

On a year-over-year comparison, polished diamond prices in August 2012 were down for all key round diamond sizes, when compared to August 2011, as the graph below illustrates. These price declines were consistent across all sizes of diamonds.

 

Source: IDEX Online

 

Long Term Trend Shows Diamond Prices Weakening Since Mid-2011 Bubble

After rising slowly since mid-2010, most polished diamond prices – by carat size – had been relatively stable during the first half of 2012, though with a weakening bias. August polished diamond prices slipped for all major round stones, though they were up for almost all fancy cuts. The graph below illustrates price trends for rounds by size.

 

Source: IDEX Online

 

Short Term Outlook Unchanged – Lackluster Price Trends

With the global economy barely limping along, consumers in most parts of the world have tightened their purse strings and reined in their discretionary spending. All of the major publicly held international jewelry retailers and suppliers – Tiffany, Blue Nile and Movado – have noted weakening trends, even in some Asian markets. Overall, it appears that the current positive factors affecting diamond prices in 2012 are being cancelled by the negative factors, with a weakening bias.

 

·        The OECD Composite Leading Economic Indicators for the Euro Area continue to point to below-trend economic growth.

 

·        Europe is slipping into a recession, and consumers have already cut spending. European diamond demand represents just under 15 percent of total global diamond and diamond jewelry sales.

 

·        U.S. economic growth remains lackluster, with very weak gains in the first half of 2012. Further, jewelry demand – as measured by fine jewelry sales at specialty retailers and other merchants – slowed in the first half of 2012 to a mid-single digit level from a string of double-digit quarterly gains in 2011. Recent economic news from the U.S. has been disappointing, though the long-term trend remains positive. Diamond demand in the U.S. market represents nearly 40 percent of the global diamond market.

 

·        China’s diamond demand remains relatively solid, but its blazing economic growth during 2010 and 2011 has slowed this year. As a result, we expect diamond jewelry demand to pause from its previously torrid pace until it is clear that strong economic growth is sustainable in the country. China represents just over 10 percent of global diamond demand.

 

·        India’s demand for diamonds seems to be in a holding pattern currently, though the long-term prospects are very bright. India’s diamond demand represents about 12 percent of global demand.

 

·        Japan’s diamond demand is recovering, but since this market is only 8 percent of global demand, it is not having a notable impact on diamond prices.

 

Longer Term Outlook Brighter For Diamond Demand

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 solid long-term growth. As consumer wealth builds in these markets, shoppers will be spending more on jewelry.

 

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

 

Until global economic conditions solidify and accelerate, it is unlikely that polished diamond prices will begin to move substantially higher near term. We note that price trends for most other commodities used in jewelry – precious metals and colored gemstones – have been relatively flat since the beginning of the year, with no energy to move higher until economic conditions improve.

 

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. After slipping, prices remained relatively stable since October 2011, until July when they began slipping.

Source: IDEX Online