A Psssss, Not A Kaboom!

Let us start with the bad news – in the eyes of many traders in the wholesale sector of the diamond industry matters do not look good. A few described the sentiment as nothing less than panic. The good news is that matters are not as gloomy as they seem, in fact, far from it.

In the past few days, rough and polished diamonds are being offered at deep discounts of 10-15 percent. There are very few buyers, and that may give the impression that matters are even worse. After all, if hardly anyone buys even with a deep discount, something must be very wrong.

In fact, there is no buying because of the panic sentiment. It is a classic case of the chicken or the egg, of perception determining reality.

But what is the reality of the diamond market? In the first six months of the year, rough diamond prices jumped – depending on the item - by 35-55%. By all accounts, many of the prices traders paid were very unrealistic; this is especially true for the smaller goods. What pushed prices up more than anything were not the diamond producers, but traders paying exuberant premiums ON TOP of the miners' list price. Therefore, the current decrease in price is appropriate and needed.

The declines in polished prices come on the back of other factors. Traders returning from vacation are looking for the "right" price to get business moving and a pause in the market after retailers stocked up on goods during the spring and early summer tradeshows. 

Here is the good news: the Hong Kong show is ahead and it will jumpstart trading. Good rains this year in India mean weddings in the countryside will be large – and will include major diamond jewelry purchases. As indicated by the recent results of the two largest jewelry retailers in the U.S., Zale and Signet, diamond jewelry buying in the leading market is solid. As we near the fourth quarter, traditionally, that too should accelerate.

The deflating prices are only a little bit of air escaping somewhat inflated prices, not a price bubble exploding. A little psssss, not a kaboom.

Just as it is wrong to be euphoric when the market moves up, it is wrong to subscribe to gloom and desolation when prices edge down. It is all part of an endless ebb and flow cycle. In fact, realistic market-driven traders recognize that this is a great time to round up goods at discounted prices.

The summer is ending and with it the summer calm. A busy and challenging time is ahead of us and we should pay close attention to the road ahead, the road leading to December 25 and beyond.

Have a peaceful weekend.