Upcoming Spike in Colored Diamond Pricing
Supply and demand is one of the driving forces of diamond prices. We expect global demand for diamonds to grow at a 5.1 % compound annual rate from now through 2023. The emerging supply-and-demand gap will produce the price hike.
As shown on the graph below, diamonds have always performed well in terms of pricing. There has been an average of 14.47 % increase in diamond prices every year for more than fifty years.
Diamond investment: Why Prices are Rising
Vladimir Sergievskiy of Moscow-based Finam Investments forecasts a 7 million carat shortage of diamonds by 2016. The Anglo American Plc (AAL) also predicted that 40% of world diamond consumption will be by China, India and the Middle East in 2015. This figure is significant considering the fact that China, India and the Middle East only accounted for about 8% of world diamond consumption in 2005.
What are the implications of these estimates on diamond pricing? Edward Sterck of BMO Capital Markets claims that there is a strong probability that average prices for rough or uncut diamonds will increase over the coming years. In 2015, prices can go up by 2.6% and by 3.2% by 2016.
Currently, the diamond industry is controlled by market forces, not by the De Beers monopoly (read more about old monopolies in the diamond industry). At first, the open doors for a fair market also threw the doors wide open for diamond scams or the sale of non-existing gems. Diamond sales dipped in 2008 because of the global financial crisis and distressed sales. But, diamonds have been making a noteworthy rebound since 2010 and 2011.
Here is a graph by IDEX Online of the Polished Diamond Price Index in 2011 showing sharp increases in diamond prices from 2009-2011.
According to Vashi Dominguez: “certain types, including colored varieties [known in the trade as “fancies”] have held their value over the past few years better than other more volatile equity investments.”. The Rapaport Diamond Trade Index also reveals the following interesting facts:
- From 1990 to 2011 the value of a 3-carat diamond has dramatically increased by 145%.
- Within the same time frame, the value of 5-carat diamonds increased by 171 per cent.
The Billion Dollar Diamond Market
Today, the consumer demand is predicted to rebound further in major territories like China, India and United States.
China, and other countries in Asia like India and Hong Kong, are expected to be a significant part of the world’s 72 billion dollar market. Patti Wong of Sotheby’s Asia claims that there is a three-fold increase in Asian buyers who are purchasing jewelry around the world, particularly diamonds. Stephanie Lafay, from Tiffany’s Asia Pacific and Japan also said that there has been a 50 % increase in the sale of diamond engagement rings in urban China. To think, more than 50 percent of China’s 1.3 billion populations currently live in Chinese cities.
A Last Note
It is undeniable that diamond prices have increased dramatically over the years despite financial crises, social unrest and even political volatility. Nothing can compare to the stability and increasing value of diamonds, making them a great investment.