(IDEX Online) – After rising consistently since late 2009 in the post-recession period, global polished diamond prices peaked in mid-2011, and since then have slipped for the past five months, based on the IDEX Online Global Polished Diamond Price Index, widely acknowledged as the most transparent index in the industry.

 

Lukewarm polished diamond trading in December left diamond prices with very little change.  The IDEX Online Index averaged 139.3 in December, declining one percent from November, yet registering a 17.4 percent year-over-year increase.

 

Polished Diamond Trading Showed Little Energy in December

The IDEX Online Index finished at 139.1 on December 31, down significantly from a record daily high of 148.1 reached in late July, before the current price slide began. At the beginning of December, the IDEX Online Index stood at 139.6. At mid-month, the IDEX Online Index briefly flirted with 140, before settling into a trading range around 139 for the balance of the period, as the graph below illustrates.

 

Prices have continued to weaken modestly in early January 2012.

 

Source: IDEX Online Research

 

Longer Term View Confirms Sluggishness of Diamond Prices

The graph below illustrates global polished diamond prices for the past twenty-four months. After posting a solid recovery in the post-recession period, polished diamond prices have trended slightly lower since the middle of 2011.

Source: IDEX Online Research

 

Month-to-Month Polished Diamond Prices Soft

When polished diamond prices are compared between December 2011 and November 2011 – based on the average price for the month – prices slipped by one percent. This decline was the fifth monthly drop since prices peaked in July 2011. Five months ago, in July, the month-to-month increase in diamond prices was 5.6 percent: this out-sized gain should have been a sign that the industry was nearing the top of a price bubble.

 

The graph below illustrates month-to-month price trends for polished diamonds. While there was some softness in mid-2010, price gains had been quite strong through July 2011.

 

Source: IDEX Online Research

 

Year-to-Year Polished Diamond Prices: Rate of Inflation Slows

Polished diamond prices in December 2011 rose by 17.4 percent from the same month a year ago, based on average prices during the month.

 

The graph below shows that December’s polished diamond price increase of 17.4 percent is well above some prior gains over the past year, but below the record increase for July. Further, it reflects a slowing year-to-year price comparison.  

 

Source: IDEX Online Research

 

Prices Diamond Prices Mixed By Size

Month over month prices were down for most of the key sizes of round-cut diamonds during December.

 

However, four-carat polished diamond prices rose; this was the only major category that posted higher prices in December. We think that this is due to a new trend in diamond jewelry: “big is good, but bling is better.” Shoppers don’t need the biggest diamond; they just need more bling than their friends. A four-carat diamond has ample bling for most people, and it is a popular size, according to retail jewelers.

 

The graph below shows polished diamond price trends for key diamond sizes based on prices during December 2011 versus November 2011.

 

Source: IDEX Online Research

 

On a year-over-year comparison, polished diamond prices in December were up for the key round-cut diamond sizes. Prices for half-carat and four-carat diamonds rose sharply, while price gains were more modest for 1.5, 3.0 and 5.0-carat goods. This pricing disparity is more or less similar to price trends over the past few months.

 

Source: IDEX Online Research

 

The graph below summarizes three years of prices for key polished diamond gemstone sizes and qualities. After rising slowly since mid-2010, most polished diamond prices have shown a downward bias for the past five months.

 

Source: IDEX Online Research

 

Outlook: Near-Term Uncertain; Long Term Bright

There is above average uncertainty in the global markets as the diamond industry enters 2012.

 

·        The good news: while the U.S. economy has shown a modest post-recession recovery, most economists are predicting that 2012 economic gains will outpace 2011’s tepid growth. The American market accounts for just under half of global demand for diamonds and diamond jewelry. There is a high correlation between economic cycles and diamond demand. Therefore, if the U.S. economy posts improvement in 2012, it is reasonable to assume that polished diamond demand will strengthen in this market.

 

·        The bad news: other global markets are pinched. In Europe, the consensus is that the European Union will slide into a recession in 2012. Further, its debt crisis could be a drag on other nations’ growth, especially if Europe’s pace of imports slows. In China, the frantic economic growth of the past decade is slowing, though economists are calling for a soft landing in 2012.

 

·        The OECD – the Paris-based think tank – suggests that the global economy is poised for a modest slowdown in 2012. This will have a dampening impact on polished diamond demand.

 

Longer term, polished diamond prices appear to be headed higher due to several factors:

 

·        Emerging markets, including China and India, are poised for long-term growth. As consumer wealth builds in these markets, shoppers will be spending more on jewelry.

 

·        Rough diamond supplies appear to be flat for the next decade or longer. With flattish supply, but rising demand, the forces of capitalism will push diamond prices higher.

 

The table below summarizes the average price of polished diamonds, using the IDEX Online Polished Diamond Price Index. The pre-recession peak for diamond prices occurred in August 2008. As expected, polished diamond prices were weak during the “Great Recession” which officially ended in mid-2009.

 

Unfortunately, polished diamond prices lagged the general economic recovery, and did not begin to show an upward bias until early 2010. The new, latest record price level (red box) occurred in July. Since then, polished diamond prices slipped, but still remain at relatively high levels, well above the pre-recession peak.  

Source: IDEX Online Research