Polished diamond prices are on a near year-long rally, rising more than 18% since last July when they hit a record low.
This is great news for a languishing diamond trade that hasn’t seen extended price hikes in a decade. However, concerns are starting to creep in that this slingshot trajectory is reaching its apex and that we are facing a diamond price bubble.
It is not only polished diamond prices that are rising. Rough diamond prices rose a high single digit in the last month alone against high demand. The main reason for rough and polished diamond price increases is the booming sales of diamond jewelry at jewelry stores in the US and China, driven in turn by voracious consumer demand.
The view from the cash register
Much has been said about just what drove consumers to spend on diamond jewelry, but what did this look like in real time? An analysis of retailer sales shows that in the first five months of the year, overall jewelry sales shot up 75% year over year to $32 billion.
According to our analysis, US jewelry sales in May totaled $8.57 billion – a record high for May. Year over year, sales were up 109.3%, and up 52% over May 2019. Year to date, US jewelry sales have rebounded a massive 41% compared to 2019.
Diamond jewelry has also done exceptionally well since May of 2020. Our specialty jewelers’ sales analytics show that the average size of diamonds set into jewelry rose from 1.06 carats to 1.22 carats in the last two months. Clearly, consumers want more, bigger, and even pricier diamonds.
Early signs of a diamond price bubble
Despite the good news, we are seeing the first signs of a slowdown in consumer demand. While total jewelry sales by all outlets remain very positive, at specialty jewelers, the picture is a little different.
Total sales of all jewelry items declined a low single point in May, mainly due to a decrease in spend per item.
Also, total diamond jewelry sales seemed to fall a low double digit. This is already a warning sign. If demand for all jewelry is starting to decline, and diamond jewelry in particular is declining, we know something deeper is happening.
Is this the proverbial gun in Act I?
The wholesale perspective
Wholesale polished diamond prices have risen across the board. It seems that every worry that had cast a shadow on the midstream disappeared under the bright sun. Lab-grown proliferation, declining bank financing, unfriendly tax regimes, large inventories, poorly managed inventories, limited market data, the slow response to shifting consumer tastes – all vanished like an overleveraged trader with mounting debts and no source of income. Poof!
This positive feeling is fueled by the 14.7% average rise in wholesale polished diamond prices. The combination of a steady cash flow, less bank debt, and access to all the rough diamonds they could possibly need serves to reinforce the sentiment.
Compared to 2019, prices are not much better – only about 1.4% in May 2021 over May 2019. And yet, any trader will sign off on a steady 1.4% annual rise in diamond prices.
On a broader scale, the diamond midstream hasn’t seen extended price hikes since the first half of 2011. The past decade was a tough one for the diamond industry. In many ways, it was a lost decade. There is no need for fancy diamond analytics to see that.