(IDEX Online) – Polished diamond prices continued to languish in April, ending the month almost one point lower from where they started, according to the IDEX Online Global Polished Price Index.

 

Essentially, traders are unable to push prices up, nor are buyers able to bring them down: they are stable, waiting for a catalyst to send them higher …or lower.

 

While the April monthly average of the IDEX index was flat with the average for March, the averages don’t tell the full story. After perking up a bit in early April, polished diamond prices began to sag in the third week of the month, ending one index point – or seven-tenths of a percentage point – below where they opened at the beginning of the month, as the graph below illustrates.

 

Most of the key polished diamond sizes posted lower prices in April. The significant exception: five-carat round diamond prices were up by a strong seven percent.

 

The graph below summarizes the daily movement of polished diamond prices during April based on the IDEX Online Global Polished Price Index, widely accepted as the most accurate and most transparent indicator of global polished diamond prices.

Source: IDEX Online

 

Polished Diamond Price Trend Flat for Seven Months

After peaking during the summer of 2011, global polished diamond prices slipped during the third calendar quarter, and flattened during the fourth quarter of 2011. Since the beginning of 2012, polished diamond prices have remained relatively flat, as the graph below illustrates.

Source: IDEX Online

 

The graph below shows how sharply diamond price momentum has slowed on a month-to-month basis since mid-summer 2011. After rising by more than 5 percent per month in June and July 2011, prices slipped in the third quarter, and have been flat since the beginning of 2012.

 

Source: IDEX Online

 

Since the beginning of May, polished diamond prices have continued to lose momentum, though at a very slow pace.

 

Final Demand Remains Dull

There are no significant large global markets where diamond and jewelry demand is exceptionally strong.

 

·        Europe seems destined to slip back into a recession, and consumers have already begun to cut spending. European diamond demand represents just less than 15 percent of total global diamond and diamond jewelry sales.

 

·        U.S. economic growth is lackluster, and jewelry sales growth slowed in the first quarter of 2012 to a mid-single digit level from a string of double-digit quarterly gains in 2011. Diamond demand in the U.S. market represents nearly 40 percent of the global diamond market.

 

·        China’s diamond demand remains solid, but its blazing economic growth during 2010 and 2011 has begun to slow, and we expect diamond jewelry demand to pause from its previously torrid pace. China represents just over 10 percent of global diamond demand.

 

·        India’s demand for diamonds seems to be in a holding pattern currently, though the long-term prospects are very bright. India’s diamond demand represents about 12 percent of global demand.

 

·        Japan’s diamond demand is showing some strength, but since it is only 8 percent of global demand, it is not having a notable impact on diamond prices.

 

Until global economic conditions solidify and accelerate, it is unlikely that polished diamond prices will begin to move significantly higher. We note that price trends for most other commodities used in jewelry – precious metals and colored gemstones – have been relatively flat since the beginning of the year, with no energy to move higher until economic conditions improve.

 

Year-to-Year Polished Diamond Prices: Gains Slowing Markedly

Polished diamond prices in April 2012 rose by just 7.1 percent from the same month a year ago, based on average prices during the month. This is the second consecutive month that year-to-year price comparisons have fallen to single-digit levels.

 

The graph below shows that April’s polished diamond price increase of 7.1 percent is well below prior months’ trends. Further, it reflects a slowing year-to-year price comparison.

Source: IDEX Online

 

Diamond Prices: Most Sizes Post Lower Prices in April

Prices edged lower for almost all of the major polished diamond sizes in April versus March.

 

·        Prices for all diamonds four-carat and below were either flat or down slightly.

 

·        The surprise: five-carat diamond prices rose sharply in April, when compared to March. This is the reversal of March’s trend, when five-carat stones showed a large decline in price. Supply of these stones is limited, and prices tend to bounce around.

The graph below summarizes monthly price changes for polished

Source: IDEX Online

·        On a year over year comparison, polished diamond prices in April 2012 were mostly ahead for the key diamond sizes, when compared to April 2011. Prices for most size stones rose by mid-to-high single percentage levels, with the notable exception of three-carat diamonds. This is mostly a tough comparison against last year: three-carat diamonds popped in price during April 2011, slipped in May, and then began trending higher in June 2011.

 

Source: IDEX Online

 

Long Term Trend Shows Bouncing Prices in 2011 and Early 2012

Most polished diamond prices have shown a downward bias for the past nine months, with the exception of February, when it appeared that polished diamond prices were headed higher. Essentially, polished diamond prices have been bouncing around on a monthly basis since mid-2011.

 

Source: IDEX Online

Outlook: No Major Negatives on the Horizon

Overall, it appears that there are more positive factors than negative factors that will affect diamond prices, both during 2012 and beyond:

 

·        Good news: most economists are predicting that 2012 economic gains in the U.S. will modestly outpace 2011’s tepid growth. There is a strong correlation between economic cyclicality 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 offset: the OECD Composite Leading Economic Indicators for the Euro Area, China and Brazil continue to point to below-trend economic growth.

 

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

 

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

 

·        Rough diamond supplies appear to be flat, at best, 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 (box). 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 2011. After slipping, prices have remained relatively stable since October 2011, well above the pre-recession peak.

Source: IDEX Online