IDEX Online Research: Polished Diamond Prices Plateau in AprilMay 05, 10
Polished diamond prices across the global market plateaued in April after posting solid gains during the first quarter of 2010, according to the IDEX Online Polished Diamond Price Index, a proprietary measure of global diamond prices. Polished diamond prices rose just 0.8 percent in April compared to March.
The IDEX Online Polished Diamond Price Index trends in April:
· The IDEX Online Index began the month at 114.78 and ended the month at 115.18. During the month, there was almost no day-to-day movement. There was a slight increase in the Index during the last three days of the month.
· During the month, the IDEX Online Index averaged 114.65. While this 0.8 percent higher than the average price in March, it is in line with the Index at the end of March.
· Polished diamond prices rose 0.8 percent in April versus March, based on average prices for the month.
· Polished diamond prices rose 5.8 percent between April 2010 and April 2009.
The graph below summarizes the IDEX Online Polished Diamond Price Index for the past two years.
Source: IDEX Online
While polished diamond prices remained static during April, there are fundamental underlying factors which are poised to push polished diamond prices higher, including the following:
· Higher rough diamond prices – At the most recent DTC sight at the end of April, rough diamond prices rose by mid-single digit levels.
· Operating costs continue to rise – Higher operating costs are putting pressure on the diamond pipeline at all levels. Suppliers and retailers must recoup these costs, if they are to maintain profitability.
· Re-stocking the pipeline will create inflation – The diamond pipeline was drained during the recession in a drive to reduce inventory levels. Now that diamond demand is recovering, the re-stocking will cause prices to rise.
Outlook: Prices Likely Headed Higher
All fundamental signs point to higher diamond prices. Further, logic says that prices should continue to rebound, as the global economic recovery gathers steam.
IDEX Online Research believes that April polished diamond prices simply paused for seasonal reasons. April is traditionally a slow trading month in the diamond industry.
However, Robert Bruner, dean of the University of Virginia’s prestigious Darden Graduate School of Business Administration, recently authored a book called “The Panic of 1907: Lesson’s Learned from the Market’s Perfect Storm.” He compares the Panic of 1907 to the Recession of 2008-2009 because both had similar underpinnings related to bank failures. If you aren’t familiar with the Panic of 1907, it is no surprise, since this economic disaster was eclipsed by the Great Depression more than two decades later.
Bruner argues that it is not recessions or economic slowdowns that we should watch and fear, but rather the bubbles that precede the inevitable bust. The larger the bubble, the larger the bust, based on historical evidence.
So, how does Bruner’s argument relate to global polished diamond prices? Simple: it could be argued that the current price spike which has occurred over the past three months is a bubble that is about to burst (again). When prices move up so quickly, it does raise questions about the viability of the energy behind those price increases.
We believe that both fundamentals and logic are on the side of the polished diamond industry, and that, in fact, polished diamond prices are headed higher after April’s pause, both this year and longer term.
However, we’d be remiss if we don’t note that we should be much more careful watching for bubbles – because they always burst!
Click here for additional details on the April polished diamond prices.