Since April 2009, the average wholesale price of 1-carat round diamonds rose by 12.3%. Not a whole lot, however this figure is somewhat misleading. Along the way, prices were as much as 82% higher than in April 2009, falling to just 6% above the April 2009 levels.
Like all manufacturers and traders, diamond manufacturers and traders always harbor a hope that polished diamond prices will be on a constant upward trajectory. This way, they hope, they will always be able to earn more. This is of course not a rational expectation, and no one actually expects this to really happen. However, the idea that you buy your raw material at a cost that reflects current prices of the final project, and sell that final product several months later at new, higher prices, is understood. In fact, even if you take inflation into account, prices typically do rise in the long run.
A few months ago, we looked at the changing prices of third carats, and then we examined the price trend of two-carats. This week we examine the price trend of what is considered the standard diamond – the one-carat round.
Our diamond price index was launched in April 2009. In the nine years that have passed since then, we have witnessed the lows and then a recovery from a major international financial crisis, a period of increased financing marked by strong levels of demand for diamonds, and a period of slowly relaxing demand for diamond jewelry. All had a great impact on diamond prices, and this turbulent period is therefore an interesting way to see how prices of specific diamonds behave over time.
In the following graph, all key sizes of polished diamonds are indexed to 100 in April 2009. As noted in the article on round-shaped thirds (0.30-0.39 carats), thirds were the best-performing diamonds in terms of price appreciation, rising 29.9% in the 107 months that passed since April 2009. As noted, this is not a very high return on investment. The price of gold rose by approximately 42% in the same period; crude oil increased 21%, and the S&P 500 soared 187%. Diamonds, however, are not a regular commodity.
First, diamonds are not traded on a commodity exchange. There are no futures derivatives or hedge funds invested in diamond-related financial tools. Because the involvement of the financial markets in diamond trading is not strong, these markets have little impact if any on polished diamond prices. Also, polished diamonds are mainly purchased as a component of a consumer product – diamond jewelry. If you follow polished diamond prices, you know that they tend not to change much. The prices are relatively stable, price fluctuations are limited, and even when prices do rise or fall, it is within a very narrow range. If the price changes sharply, it is usually due to an extreme market situation, often external to diamonds.
When we examined the changes in price of two-carat rounds, we showed that it is one of the most stable diamond items out there. Since April 2009, their price has been practically flat, rising just 3.9% in the 107-month period. If you look at the changes in price of one-carat rounds, you will see that it is nearly as stable as two-carat rounds.
On a year-over-year basis, we see that in 2010 prices are up, but the rate of rising prices decreased in the second half of the year. This is not surprising, because it came on the heels of a slow period – the 2008-2009 financial crash, so this is really a recovery of prices. In 2011, when prices were inflationary, prices rose sharply, at one point by as much as 42% year-over-year, averaging 25.9%. This is comparable to thirds, which rose by 20-30% and even 40% at one point, and averaged 16.5% during 2011.
The wild year-over-year price increases of 2010 and 2011 did not last. Those rises are now gone, replaced by a series of declines, some deep, some small. Up until now, the only period of rising prices among 1-carat rounds was during 2016, when a small recovery took place after four years of declines. The deep declines, both in 2012 and in 2015, were double digit price falls. In 2012, price of 1-carat rounds fell at times by more than 20% year-over-year, averaging 13.9%. In 2015, the declines were even deeper, often crossing the 20% threshold, twice diving as deep as 22.4%, and averaging 17.9% every single month of that year.
In 2016, prices somewhat recovered, rising 4.8% on average every month, compared to 2015. These price improvements did not erase the long and deep declines of the preceding years. However they did indicate what we can now identify as a pause in declines. The driver of these ongoing price declines, not only for one carats but for other size ranges, is the resistance by consumers to pay so much for diamonds. So after the pause in 2016, this consumer pressure continued throughout 2017. During last year, the average price of 1-carat rounds was 6.4% per month on a year-over-year basis.
A look at prices on a month-over-month basis shows that round 1-carat diamonds have small price fluctuations, rarely exceeding one percent month-over-month. During the entire nine-year period between April 2009 and May 2018, prices of round 1-carat diamonds fluctuated on average by just 0.2% on a month-over-month basis. However, at times the average price does make dramatic jumps. After a series of small month-over-month hikes in late 2010 and early 2011, prices leaped some 15.3% in April 2011. They then dropped more than 12% in August of that year.
This is to say that 1-carat rounds are a fairly price stable item, but at times, prices rise or fall dramatically. Once again, comparing to third-carat rounds, prices of round thirds in the 2009-2018 period changed on average by 0.3% from month to month. While still small changes, much more than 1-carats’ 0.2% and triple the average change for 2-carat diamonds.
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.
Diamond industrialist Ehud Arye Laniado is a man passionate about diamonds. From his early 20s in Africa and later in Belgium honing his expertise in forecasting the value of polished diamonds by examining rough diamonds by hand, till today four decades later, as chairman of his international diamond businesses spanning mining, exploration, rough and polished diamond valuation, trading, manufacturing, retail and consultancy services, Laniado has mastered both the miniscule details of evaluating and pricing individual rough diamonds and the entire structure of the diamond industry. Today, his global operations are at the forefront of the industry, recognised in diamond capitals from Mumbai to Tel Aviv and Hong Kong to New York.