Polished diamond prices in the global market were nearly flat versus the same period a year ago, according to the IDEX Online Polished Diamond Price Index. The average price of polished diamonds in July 2006 nudged ahead of July 2005 levels by only 0.4 percent. On a month-over-month basis, diamond prices fell about one-half of one percent from last month’s – June 2006 – levels.

 

Polished diamond price trends largely reflect U.S. retail demand for jewelry and diamonds. While U.S. retail sales of jewelry were solid in May for Mother’s Day, they were soft in both April and June. Further, high-energy costs continue to eat into consumers’ discretionary spending. With these volatile trends and uncertainty in the market, retail jewelers have been hesitant to re-stock their inventory.

 

Other retail markets around the world are also reflecting uncertainty, especially related to geopolitical events in North Korea, Iran, and Indonesia as well as the hostilities between Israel and Lebanon. While consumers have cut back on their diamond purchases modestly, merchants have been slow to order replacement merchandise in anticipation of a possible global economic slowdown.

 

The graph below summarizes global diamond price trends since mid-2005.

 

Source: IDEX Online

Diamond and Jewelry Demand Lead Economic Activity

Consumer demand for diamonds, diamond jewelry, and other gemstone and precious metal adornments tends to be a leading indicator of upcoming economic activity, especially in the U.S.

 

Jewelry demand has been volatile recently, with a tendency towards a weakening trend. This correlates with many global economic forecasts, which call for weaker economic conditions worldwide. In addition, softening jewelry sales in the U.S. are reflective of the second quarter economic activity, when the U.S. posted a weaker-than-expected 2.5 percent gain in Gross Domestic Product, the key measure of economic activity.

 

The list of factors that will dampen diamond demand near term include the following:

 

• Weakening economic growth in the U.S.
• High energy prices, which have left consumers with less discretionary income.
• Unsettling geopolitical events in North Korea, Indonesia, Iran, and other smaller countries who are attempting to flex their political mettle.
• Escalating hostilities between Israel and Lebanon, with U.N. ceasefire negotiations deadlocked.
• Possibility of weak global economic conditions, especially in Western Europe.

All of these factors – and some other less important events – have caused diamond prices to be almost flat on a year-to-year basis. In addition, as the graph illustrates, recent diamond price trends appear to be on a gentle – but perhaps long-term – descent.

 

Source: IDEX Online

Even Large Diamond Prices Have Softened

In past months, prices of large diamonds were surging, while “mass market” diamonds – generally in the 0.50 carat to 1.50 carat range were down moderately year-over-year. However, as the graph below illustrates, prices have slipped for each of the past three months in all major stone sizes – one-half carat through two carat diamonds. Among very large stones – five carat, for example – prices remain above least year’s levels, but the price difference has moderated. In June, five carat round diamonds, which represent less than 1 percent of the market, were 17 percent above June 2005 levels. By July, the gap closed to a 12 percent price difference on a year-to-year basis.

 

The graph below shows summarizes price trends for diamonds 0.50 carats and larger. The four sizes shown – 0.50, 1.00, 1.50, and 2.00 carats – comprise just under 30 percent of the diamond market in terms of dollar value.

 

Source: IDEX Online

Uncertainty Is In the Air

With so much global uncertainty, jewelers will have a challenge to maintain or boost sales, especially as the industry heads into the all-important holiday selling season of November and December.

 

Retail jewelers will get some help from the Diamond Trading Company, the sales and marketing arm of diamond-producer De Beers, which is stepping up its global diamond advertising and marketing efforts. The company recently announced that it is increasing its U.S. advertising budget by 17 percent this year. Further, De Beers’ clients – those who cut and polish rough diamonds – are also increasing their marketing efforts for diamond jewelry.

 

The IDEX Online Diamond Price Index

The IDEX Online Diamond Price Index is a real-time index derived from actual asking prices of the global diamond industry. The IDEX Online Diamond Price Index objectively reflects price trends as they happen. The Diamond Index and Diamond Drivers were formulated following comprehensive research and analysis of the IDEX inventory database, aggregated since February 2001. Research and development were conducted in cooperation with Dr. Avi Wohl, Senior Lecturer of Finance at the Faculty of Management, Tel Aviv University.

 

Additional information is available from IDEX Research. E-mail diamondprices at idexonline dot com.