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Prices of smaller goods recovered in November, responding to rising demand. Larger goods, however, suffered from further price declines. The Mercury Diamond Global Tracker™ (MDGT™) averaged 110.1 in November 2018, down 1.30% from October. Polished diamond price increases are a typical cyclical trend in November, as holiday season purchases drive demand.
November is historically a period of rising demand for polished diamonds by retailers during the November-December holiday season. In the past few years, demand by jewelry manufacturers peaked in September, followed by a minor slide in October and a rise in November. The question is what goods are in demand, and therefore rising, as opposed to those items that are in lesser demand.
When examined more closely, we see that price and demand in November was inconsistent in terms of sizes over the past decade. This year, it is the smaller goods – below one carat, down to 0.30-carats, that had a price increase. In November 2017, prices of goods up to 1.50-carats increased. In 2016, prices largely declined, and in 2015 prices rose across the board.
Price Index Points Down
MDGT™ is based on the transaction prices of diamonds weighing 1-30 carats, collected and used for the Mercury Diamond™ Price List. It provides wholesale polished diamond prices based on transaction prices in the wholesale market, and its primary purpose is to serve the wholesale market.
In November 2018, the index stood at 110.1, down 1.3% from October, and 4.0% year-over-year. The decline in the index reflects the downward trend of polished diamonds weighing 1-carat and above.
Year-over-year, polished diamond prices are far below those of the previous year. The 4.0% decline in November is the largest year-over-year decline since August 2016. In the past three months, the index fell by more than 2% every month. In October, the index declined 2.8% compared to October 2017, and in September, the index declined 2.8%. Since December 2014, the index has exhibited continued year-over-year declines. The escalating decline is a trend to which the industry should pay attention. Unless there is a major pickup in December, we may be facing yet another year of eroding consumer interest.
Although the trend of year-over-year price declines started in December 2014, the steep declines of 2015 appear to be over, and they have since tapered off, until now. The year-over-year declines of 2% or less has been steady since the start of 2018. The 2.8% decline in October, followed by the 4.0% decline in November are not positive signs. However, compared to the steep declines of the past, recent months seem almost tranquil in comparison.
On a month-over-month basis, prices of goods weighing 1-carat and larger were down, pulling the index down 1.3% compared to October. On a month-over-month basis, price change is usually within a single percent range, often just a fraction of a percent. The large November decline means that the decline is not within the norm.
Prices of Smaller Goods Pop
After the price declines of smaller goods in October, in November prices of smaller diamonds bounced back. Round diamonds weighing 0.30-0.39 carats (thirds) rose 2.0% compared to October. Prices of half-carat rounds increased a strong 2.8% and 0.70-0.89-carats posted an even more dramatic 2.8% price hike.
From there on up, prices of round polished diamonds fell during the month, mostly by more than 1%, which is a relatively large price change. The changes in price reflect changes in consumer demand, especially now during the holiday season when retailers are placing specific orders to meet consumer in-store requests.
On a year-over-year basis, price behavior was very similar: prices of smaller goods rose and those of 1-carat and above declined. Last year prices declined sharply in the summer months and continued to decline until December 2017. As a result, on a year-over-year basis, prices are up sharply where prices improved, but somewhat weaker where prices continued to fall.
Prices of thirds were up 7.9%, halves are up 9.7% and 0.70-0.89-carats 7% year-over-year. One-carat goods, while down compared to the previous month, are up 3.4% compared to November 2017, while the price of 1.5-carats was up just 0.5% year-over-year. Larger goods declined, including 2-carats that lost 1.8% year-over-year and 3-carat rounds that fell 2.3% during the period.
The global diamond market is deep into the holiday season. Last year, diamond jewelry sales were slow in November and very intensive in December. The main reason was the general lateness in purchases by American consumers. A very large chunk of holiday purchases for most any consumer product took place during the second half of December. Is this the case this year as well? That is yet to be seen.
It is currently clear that consumers have a strong preference for smaller goods. This is an ongoing trend that is also dependent on price. If prices of these in-demand items rise too high, consumers immediately turn their backs on them. This was true in the early summer months and again in September.
About MDGT™ and the Mercury Diamond™ Price List
We have developed a system that collects transaction prices from a wide range of manufacturers, traders and retailers. These many monthly transactions are augmented by constant market research, which backs, double checks, verifies and completes the transaction data. The system covers more than 18,000 polished diamond categories across the 4Cs, including polished diamonds weighing up to 30 carats with clarities ranging from Flawless to I3, in colors from D to P and in various shapes.
The price list provides a price for a top stone without any irregularities. There is a separate table of irregularities, which provides the necessary discount or premium to find the exact current price of any particular diamond.
This polished diamond pricing system was reviewed and validated by one of the Big 4 accounting firms, and that firm continues to audit the price list monthly. The pricing system is currently in the process of obtaining a patent in the United States. Traders will not only find the current transaction price of each diamond, but by applying their manufacturing costs, they can also “reverse engineer” to calculate the cost of rough diamonds.
We currently publish the price list monthly, on the tenth of every month. It is also available in the form of a ticker. Take a look at this important alternative, which has the potential to contribute to an important change in the market. Please download the list and test it. We offer it to you with the hope that you will consider using it regularly.
The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a Professional qualified adviser.