Up, Up and Away

It all seems to go well, and I'm the last one to shout 'Fire' in the middle of a happy party. Only last week I mentioned here that polished diamond prices are tightly connected to consumer demand while rough diamond prices are much more free willing, marching to a beat of their own.

Since than, the Hong Kong show took place, generating such a large volume of business that quite a few wholesalers said they sold out of goods at the show. Demands covered a wide range of goods in terms of size, color, clarity and cuts. The destination was mostly to India and China, but with a fair share going to the resurrected U.S. and Japanese markets as well.

Consider this account, just to underscore the demand: according to traders, the price of a number of items increased between 3 to 6 percent between the week before the show and today, a couple of days after the show ended.

On one hand, this is great news. At a time when the jewelry industry is competing against gadgets and other luxury items for a slice of discretionary spending money, when margins are eroding and manufacturing inflation is outpacing retail price hikes, we can be happy to see new markets opening and developing a serious appetite for diamond jewelry.

On the other hand, I spoke today with a diamond industry veteran who was not altogether exited about the news. "This reminds me of 1979," he told me. He was later joined by another long-time industry insider that echoed that sentiment. "There is something a little unnerving about the rate that prices are increasing." Both remembered long gone days when diamonds were sold quickly, mainly to ensure you had enough money to buy more goods. Prices increased whole percentage points during the day and buyers purchased parcels without even looking at them.

All this ended of course, when the carpet was pulled from under their feet and prices tumbled all at once to just a fraction of their highs just a few weeks earlier.

Today we are in a sellers market. Buyers not willing to pay the price are not getting the goods. New stores are opening daily in China and each one needs a whole fresh stock just so they could open the doors. This alone is enough to drive an industry, especially now that Chinese consumers are willing to buy TTLB and pique goods.

We should take advantage of the ride for as long as we can, but also keep an eye out to ensure that the strong winds that are carrying us up and away are not hiding a storm beyond the horizon.