Carpe Diem, For Who Knows Where We're Heading

If you didn't have a calendar, you could suspect that it's mid-2008. Polished prices are increasing, rough prices are at an all time high, optimism is in the air, and the party is raging. But every mid-2008 has a late 2008. Where are we heading? 

A quick look around should put a smile on most faces in the industry. After a very profitable 2010, the industry entered a 2011 with gusto. Consumers are buying diamond jewelry with a ferocious appetite in two of today's most influential economies - China and India, orders and demands are flowing in, polished prices are back to pre-crisis levels and rough prices are booming. The lower production level (compared to mid-2008) seems to be the icing on the cake, helping create a demand that outstrips supply.

This idyllic scene has a few details that require a closer examination. The incremental, daily increase in the IDEX Online Polished Diamond Index in the weeks leading to the Hong Kong Show continued throughout the successful fair. The index climbed during the following days, buoyed by the lingering optimism until the third day of BaselWorld. When it became obvious that the show is not as good as expected, the Index fell straight down for two days. The turnaround took place last Monday, when it became clear that rough diamond prices are rushing ahead. In the last couple of days, the Index is not rising; it is making small declines and pauses. 

Another small smudge was Sotheby's Hong Kong auction on Wednesday. Prices for diamonds were not the record breakers we were used to see. Instead, they were much closer to wholesale prices. Subtracting the cost of sale, those that put their goods on auction may have actually pocketed even less than full wholesale price. And while the prices may reflect the buyers – possibly mainly traders and not private collectors - only about 70 percent of the lots were sold when around 85 percent of the lots are usually sold.

All in all - with lower bank indebtedness, leaner manufacturing operations, an expected increase in GDP in all the important markets, and a recent economic trauma - all looks to be on a very positive path. At the same time, we must remember that all the signs of an imminent crisis were presented to the industry in June 2008 when buyers were extra cautious during the JCK show. Yet, we didn't see it coming. 

There are some small signs that may just be the small imperfections that must exist. However, they may also serve as warnings that for now, we can't ignore. 

In the words of the Roman poet Horace, Carpe diem, quam minimum credula postero - Seize the day, trusting as little as possible in the future.

Have a peaceful weekend.