IDEX Online Research: Polished Diamond Prices Higher in MarchApril 05, 10
Polished diamond prices posted solid gains in March, according to the IDEX Online Global Polished Price Index. This is a continuation of a trend that began about four months ago. Further, leading indicators point to even higher prices later this year.
The polished diamond price bubble peaked in August 2008, and then burst quickly along with the sharp decline in global financial markets late that year. Diamond prices reached a bottom at the end of the first quarter of 2009, and languished for the rest of that year until about December. Just as 2009 was ending, polished diamond prices broke out on the upside from their narrow trading range, a trend that has continued into 2010. Thus, the current price rebound – which appears to be sustainable – is a welcome trend for polished diamond traders.
There are four key factors pushing polished diamond prices higher:
· Rough diamond prices are rising.
· The global economic recovery has begun, led by exceptional strength in the United States, the largest market for diamonds.
· Anticipation of re-stocking in the diamond pipeline, especially at the retail level.
· The announcement by some jewelers that they have begun to raise their retail prices for jewelry, including diamond merchandise.
Key global polished diamond price statistics for March 2010, based on the IDEX Online Global Polished Price Index, are as follows:
· The IDEX Online Global Polished Diamond Price Index averaged 113.7 during March, up about 1 percent from the average of 112.6 for February. This was the fourth consecutive month that polished diamond prices have risen, after languishing for most of 2009 at around 108.
· The IDEX Online Polished Price Index started the month at 113.2 and ended the month at 114.6. It showed steady gains throughout the month. Since the end of the month, polished prices have continued to rise in April.
The graph below illustrates the IDEX Online Polished Price Index over the past two years.
Source: IDEX Online
U.S. Economy & Diamond Prices Moving Together
After sluggishness during most of 2008 and early 2009, the global economy is showing solid signs of recovery. In particular, the U.S. economy posted dramatic 5.6 percent (revised) growth in the fourth quarter of 2009, after generating a solid 2.2 percent gain in the third quarter of that year. Historically, jewelry demand and GDP move together.
Further, on a global basis, the OECD, the international economic think-tank based in Paris, shows that the economies of most key nations around the world are beginning to recover, after dismal growth in 2008 and 2009.
A strengthening economy in America is good news for the diamond industry, because U.S. consumers purchase roughly half of the world’s diamonds and diamond jewelry. Polished diamond prices have begun to strengthen because of prospects that shoppers will loosen their purse strings and head to their neighborhood jewelers to buy diamonds, diamond jewelry and other jewelry accessories.
Within the diamond industry, rough diamond prices have been rising for the past two years, despite weak demand downstream in the diamond pipeline. In 2009, rough diamond prices were up by perhaps 9-10 percent, but were highly volatile. So far in 2010, rough diamond prices are up about 10 percent. Clearly, higher rough diamond prices are putting pressure on polished diamond producers.
Outlook: Polished Diamond Prices Will Continue to Increase
After falling for the past year and a half, polished diamond prices are on the rise. It is highly likely that polished diamond prices will show a substantial increase in 2010, as demand recovers from the recession of 2008-2009. It is possible that prices could climb by double-digit levels for the full year.
There is one caveat: some economists are expecting economic growth to slow mid-year due to some technical factors. As a result, the mass media is highly likely to latch onto this as a negative event, and they will probably predict that this is an indicator that the U.S. is headed toward a “double-dip” recession. That’s not going to happen.
However, perception is reality. If polished diamond prices are affected negatively by this technical slowdown in economic indicators, retail jewelers should use the opportunity to load up on diamonds, because after late 2010, diamond prices are expected to continue to rise until the next economic slowdown. Those economists who make predictions based on the cycle theory are calling for a recession in 2015.
Click here for additional details and an expanded analysis on March polished diamond prices.