Global polished diamond prices continued to surge in June, according to the IDEX Online Polished Diamond Price Index. On a year-over-year basis, overall diamond prices rose by just over 16 percent, a record level. Further, all major size diamonds one carat and larger posted double-digit price increases for the same period.

 

In prior months, prices for diamonds two carats and under had been lagging. Even half-carat diamonds posted a 5 percent price increase year-over year. Thus, it appears that diamond price inflation has finally reached virtually all diamond sizes across the board.

 

Diamond prices compared on a month-to-month basis showed similar trends: overall polished diamond prices rose by nearly 4 percent during the month. The increase was broad-based across every major size.

 

For the first six months of 2008, polished diamond prices are up nearly 10 percent over the same period last year. This means diamond prices are rising at nearly 20 percent annually. Historically, polished diamond prices have increased at a rate of 3-4 percent annually.

 

There appear to be six key factors that have been driving diamond prices sharply higher over the past six months: 1) solid demand from most markets, except the U.S. and Japan; 2) rising costs throughout the diamond pipeline; 3) a weakening U.S. dollar, the international currency for the diamond market; 4) a global rise in the price of virtually all commodities which has spilled over into the diamond market; 5) stock market volatility which has caused some traders to move their wealth into diamonds, precious metals, and other assets that may hold their value, until the financial markets recover; and, 6) there has been some confusion over the actual trading prices of polished diamonds based on artificial volatility reflected in some diamond price lists in the industry.

 

The new IDEX Online Guaranteed Diamond Transaction™ service will reflect actual prices at which diamonds trade, and is expected to become the new industry benchmark.

 

The big question is this: will these diamond price increases hold at retail, or are diamonds experiencing the same price bubble that have affected some other commodities?

 

There is a hint that perhaps the current high level of diamond prices may be moderating. Polished diamond prices surged in May and held steady in early June. But later in the month, polished diamond price levels fell modestly, searching for a new base level in the final ten days of the month. Since the end of June, diamond prices have continued to slip modestly lower.

 

The graph below summarizes the IDEX Online Polished Diamond Price Index for the past 24 months. This graph represents the composite average prices of all diamonds traded at the wholesale level. The slope of the line has continued to get steeper in recent months, reflecting consistently higher prices – and a greater rate of price inflation – for virtually all diamond sizes.

 

Source: IDEX Online Research

 

June 2008 versus May 2008: +3.8%

 

The graph below summarizes month-to-month changes in global diamond prices for the past thirteen months. With the exception of the September-October 2007 period and January 2008, polished diamond prices showed large gains during almost every month of 2007, a trend which continues into 2008.

Source: IDEX Online Research

June 2008 versus June 2007: +16.1%

 

It is unreasonable to believe that June’s diamond price inflation rate is sustainable, even though rough diamond prices are rising at a significant pace. However, most other commodities have risen sharply in price over the past several years. Diamonds are late to the “inflation party,” and perhaps their time has come.

 

As we have said many times, the polished diamond industry remains too fragmented for anyone – or any group – to hold pricing power similar to the tight-knit community of rough diamond suppliers. At the retail level, many merchants raised their prices during the first half of 2008. The IDEX Online Polished Diamond Price Index stood at 131.95 in June 2008 versus 113.67 in June a year ago.

 

On a year-over-year basis, polished diamond prices have shown larger and larger gains each month over the past year or so. The graph below summarizes year-over-year monthly polished diamond prices for the global market since the beginning of 2007.

 

Comparisons are based on the daily average prices during the month versus the same month a year ago (e.g. June 2008 versus June 2007). The year-to-year comparison takes into account the seasonality of polished diamond demand and prices.

 

Source: IDEX Online Research

Polished Prices Softened Near the End of June

After dramatic price increases for almost every month this year, diamond prices softened in the final ten days of June. This coincides with the slide of global financial markets as investors and merchants became more worried about the possibility of a worldwide recession in the second half of 2008, extending perhaps into 2009.

 

Diamond traders found that they were unable to buy and sell diamonds at the artificially high prices reflected on some industry price lists; thus, overall asking prices declined slightly to more realistic levels.

 

The following graph illustrates the average price of polished diamonds on a day-by-day basis for the three-month period April-June 2008. It is clear that diamond prices softened late in the month of June, and there was some volatility as traders tested their new prices.

 

Source: IDEX Online Research

 

Diamond Demand Remains Strong for All Sizes

What’s selling at retail? Merchants report that larger, better quality diamonds are in demand, and the prices of these spectacular gemstones reflects strong retail demand. However, in the month of June, diamonds of virtually all sizes posted solid price increases on a month-to-month basis.

 

As we have noted in the past, prices for five-carat stones have not risen as rapidly as for three- and four-carat stones. In a recessionary environment, diamond consumers are “shopping down” – foregoing the largest stones and the highest prices for something more modest, though still flashy.

 

The graph below summarizes the price changes for key sizes of polished diamonds on a month-over-month basis: June 2008 versus May 2008. These seven stone sizes represent about 33 percent of the trading market by value.

 

Source: IDEX Online Research

On a year-to-year comparison, polished diamond prices rose at double-digit levels for all but the smallest stones one-half carat and below. However, prices for large stones in the three-to-five carat range rose much more sharply while prices of stones two-carat and smaller posted only a small, but notable, gain. Did four-carat polished diamonds really rise by 76 percent year-over-year? Ask any diamantaire who deals in large high quality stones: they will confirm that prices are spiking daily.

 

The graph below summarizes polished diamond prices by key sizes on a year-over-year basis: June 2008 versus June 2007. These seven sizes represent about one-third of the market, by aggregate value.

 

Source: IDEX Online Research

Forecast: Diamond Prices Will Post a Record Price Increase This Year

Unless the bottom drops out of the diamond market – which would happen only if there is a major global recession – polished diamond prices are poised to rise at a record level in 2008, based on price gains in the first six months of the year.

 

Despite economic weakness in the U.S., and weakness in demand in Japan, most of the world’s economies are growing at a sustainable pace, a trend which is expected to continue. There are some worries that have surfaced recently about the possibility of a global economic slowdown later this year, particularly related to high energy prices. However, we don’t think this will be a major impediment to diamond demand, unless there is a price spike or a sudden shortage of oil.

 

The IDEX Online Diamond Price Index

The IDEX Online Diamond Price Index is a real-time index derived from actual asking prices in the global diamond industry. The IDEX Online Diamond Price Index objectively reflects price trends as they happen. The Diamond Index and Diamond Drivers were formulated following comprehensive research and analysis of the IDEX Online inventory database, aggregated since 2001. Research and development were conducted in cooperation with Dr. Avi Wohl, Senior Lecturer of Finance at the faculty of Management, Tel Aviv University, Israel.

 

Additional information is available from IDEX Online Research. The e-mail address is diamondprices [at] idexonline [dot] com.