Diamond prices again...

[Phoenix]

Actually, when interest rates are low and/or governments are printing money, you want to sell hard assets like houses, precious metals, diamonds, etc. because when that environment changes, the purchasing power of the buyer drops off dramatically (there's less credit/money available to buy the same number of commodities).

I hope you're right, Joe. But China's and India's interest rates are something like 7%. And I don't think mainland Chinese are borrowing money to buy diamonds - they're buying them in hard cold cash. Mainland Chinese are even bringing bag-loads of cash into Hong Kong and Singapore and snapping up properties here, thus driving up our property prices. I read a recent article and from my poor memory, mainland Chinese account for 1/3 of all new property transactions carried out by foreigners in Singapore in the last Qtr. I could be wrong about all of this though - and am sure someone will correct me if I am!

Moreover, I think that a lot of the money that mainland Chinese have derives from the boom in their property market during the last decade or two. People have been talking about the ppty bubble in mainland China and Hong Kong forever now and I've not seen any evidence of the bubble being burst - not any time soon. That's not to say that these prices are not crazy though, they certainly are!

I for one hope that the diamond bubble will burst at some point soon - just can't see the current trend continuing! but when will that point be, who knows?!

 

[Phoenix]

Ya'know, I just realised something: If it is the Chinese that's behind the current diamond "bubble", sthg juuuusst doesn't add up! It is a pretty well known fact (at least to me), that Chinese tend to prefer stones in the D-E-F, IF-VVS (or maybe VS but not SI) categories (or at least that's what all the local jewellers in HK and SG tell me). Canary in SG for instance, *only* carries those goods. They say when they first started out, they carried goods below G and those items didn't move; and so they changed strategy and it seems to work for them now. And it's true, they've been showing me a 2ct+ H coloured stone and it's been "sitting" around, unlike these higher spec'ed stones that seem to just *fly* out of their shop - in a matter of weeks, somestimes even days!!

But if that's the case, who's pushing up the prices of I-J-K stones? Even those are rocketing too! Before I bought the 2.374ct G Si1 and the 2.66ct H Si2 from BGD (well before the recent price hikes - thank God), I contemplated upgrading my J coloured studs and even those are crazy!! A 2ct J VS2 is already $20k!! So effectively, I'd be "losing" out if I were to trade them in!! So those beauties are still with me and am still enjoying wearing them on a daily basis - they're not going anywhere soon, I tell ya!

 

[Lula]

Looking at the historical trends from the data listed on the site below, prices really don't seem that unrealistic for diamonds.
http://www.ajediam.com/Diamonds_Prices_Diamonds_Ratings.html
While I agree that in times of uncertainty and the devaluation of currencies, people tend to flock towards commodities, it doesn't seem like the same situation as the real estate bubble. Now if prices continue on up, 20-30% a year, there may be a case for an upcoming correction.

Emerging markets/regions have begun gaining significant steam over the last decade, which in my opinion is certainly driving some of the recent pricing trends.

If you look at the historical data graph from the website you posted http://www.ajediam.com/investing_diamonds_investment.html
and use a straight edge to find the mean or regression line, you can see that recently there has been a fairly steep and rapid run-up in prices for loupe clean, D color diamonds of 1 carat (I agree with Phoenix's last post -- what does this mean in terms of the price increases on J or K VS2 or SI1 stones?). This run-up in and of itself does not a bubble make, because, as of right now, projecting the future using the regression line, the current prices are not too far above the mean. This means the current price increases "could" be, as some people on PS have noted, a much needed correction after a period of falling prices.

And, yes, I agree with you -- if prices continue to rise 20 - 30% each year for several years, it would be reasonable to expect that prices will fall (return to the mean).

There is an emotional component to all markets, though, and this graph taken from a blog (written in 2007) is one of the better descriptions of how psychological factors influence prices:

http://latimesblogs.latimes.com/mon...ogger-goes-inside-the-mind-of-the-bubble.html

Here's an interesting article about whether the price of gold and other metals has reached its peak http://www.breakingviews.com/2011/04/20/investors.aspx?sg=nytimes

 

[Black Jade]

Ya'know, I just realised something: If it is the Chinese that's behind the current diamond "bubble", sthg juuuusst doesn't add up! It is a pretty well known fact (at least to me), that Chinese tend to prefer stones in the D-E-F, IF-VVS (or maybe VS but not SI) categories (or at least that's what all the local jewellers in HK and SG tell me).

i've been confused about the Chinese being behind the bubble for some time. Yes, a lot of the new billionaires are Chinese but they are very much a minority in the population there. and the the stones they are buying are not, frankly, ones that you or I would EVER be in the market for. The regular "Chinese' who have just become middle class and have disposable income to spend on things like diamonds from what I have heard tend to buy, as Phoenix states above, the high colors that are not so valued here and the small sizes. I saw a Chinese woman last weekend with a diamond ring she was clearly very proud of. The stone was very white and sparkly-- and perhaps a .05? If that is typical, the prices of what we here call 'melee' in the high qualities should be going up, but not all diamonds.

I know the price of gold is rising not because of jewelry but because of speculation. They talk a lot about Indians buying lots of gold, but most of the articles from India I read say that the prices of gold there are so high that people wanting jewelry have turned to silver in the last couple of years. I believe the price of gold is so high becuase of investors afraid of the dollar. I don't have enough knowledge to know if diamonds are considered investments anymore anywhere--I had thought that they were NOT--but someone with knowledge might chime in?

 

[diagem]

Can you guys imagine the quantities & qualities of large Diamonds circulating the stormy Middle East in the last few months?
And who's to know until when.....?

 

[charlottejw]

wow I've been watching GOG's princess inventory pretty carefully because I just bought one, looks like prices went up in the last 2 days ~20% on many stones (only looked at the larger stones) guess the price increases have found their way to princess cuts... Too bad it makes the tradeup policy's worth a lot less...

 

[austere]

wow I've been watching GOG's princess inventory pretty carefully because I just bought one, looks like prices went up in the last 2 days ~20% on many stones (only looked at the larger stones) guess the price increases have found their way to princess cuts... Too bad it makes the tradeup policy's worth a lot less...

Actually, I think the price run up makes the trade up policies worth a whole lot. If prices continue a steady upward trend, and you decide that you want to sell, then don't touch the trade in policy and sell on the open market for a hefty return. If the price increases end up turning into a bubble burst scenario, I'll use my upgrade policy to trade in for 100% of what I paid, and upgrade to something larger for no out of pocket... Seems win win to me

 

[Phoenix]

Ya'know, I just realised something: If it is the Chinese that's behind the current diamond "bubble", sthg juuuusst doesn't add up! It is a pretty well known fact (at least to me), that Chinese tend to prefer stones in the D-E-F, IF-VVS (or maybe VS but not SI) categories (or at least that's what all the local jewellers in HK and SG tell me).

i've been confused about the Chinese being behind the bubble for some time. Yes, a lot of the new billionaires are Chinese but they are very much a minority in the population there. and the the stones they are buying are not, frankly, ones that you or I would EVER be in the market for. The regular "Chinese' who have just become middle class and have disposable income to spend on things like diamonds from what I have heard tend to buy, as Phoenix states above, the high colors that are not so valued here and the small sizes. I saw a Chinese woman last weekend with a diamond ring she was clearly very proud of. The stone was very white and sparkly-- and perhaps a .05? If that is typical, the prices of what we here call 'melee' in the high qualities should be going up, but not all diamonds.

Yeah, I don't know what to make of all this. When I was living in Shanghai, I didn't see too many ladies with big honkers (unlike SG or HK), but there were of course a few. Someone (I think it was MakingTheGrade - forgive me if I'm wrong) said in another earlier thread that it's still the norm for mainland Chinese to wear smaller, but higher-spec'ed - diamonds (though diamonds as e-rings have def caught up in popularity). I wonder if these Chinese that are buying larger diamonds are doing so so that they can put their "spare" money (for lack of a better term) into commodities such as diamonds and they're not necessarily wearing them at all/ or not wearing them in public.

What's interesting is the number of billionaires and millionaires in China are continually rising, and it's not just the billionaires (of which there were 64 as of March 2010) but the millionaires (1 million) that are also spending money on property, apparently diamonds (?) and I'll bet gold too (a traditional way to store/ preserve their wealth).

http://news.bbc.co.uk/2/hi/asia-pacific/8561433.stm
http://www.allvoices.com/contributed-news/8776357-million-millionaires-in-china

Another intersting tidbit: our landlord in Shanghai gave the aparment that we rented (for not a lot of money - but the yield is very low) that's worth something like USD1.2-1.4m as a wedding present to her twenty-year-old-something daughter after we moved out!! Not too many people I know give that kind of gifts to their children when they get married!!

I've found out sthg else which I didn't know about: SG and HK top the world as having the largest proportion of millionaire households. Together, these 2 countries have 1.2million millionaire households out of a combined population of 12 mil people. No wonder these HUGE honkers keep flying out of Canary (my local jewellry store)!!

http://www.dailyfinance.com/2010/06/11/where-the-worlds-millionaires-live-the-top-10-countries/

 

[WinkHPD]

Are diamond prices cyclical at all or do they perpetually increase? In other words, is it possible that I'd buy a stone for 1k today, but if I bought it a year from now it would be 2k, and if I bought it three years from now (presuming a "leveling out"), it would be 1.5k?

Sheherizaad,

I have been in the trade since 1970 in one way or another, so I have some great memories of the rediculosity that took place in the late 70’s and up to February of 1980 as every fool tried to be a greater fool than the one who bought before him. Sometimes it is too easy for me to remember this time.

I am happy to have had a nice conversation with Paul Slegers the other day and he reminded me of a few things.

If you look at the current gold price of around $1,500 per ounce, this is nearly half of the inflation adjusted top level around $800 that was reached in February of 1980. In today’s dollars I believe that would be about $2,800.

Of course, it is dangerous to compare current pricing to the bubble-prices of 1980. But it is clear that prices have been relatively stagnant over the past 20 years, and that the major players (like De Beers’) have done a horrible job of getting the most out of their output. Compared to other commodities, diamond-prices are well behind. On top of that, with the low dollar, diamond-prices are even further behind in other currencies, while production happens in those countries, and current growth in demand also comes from such countries.

Further complicating matters is the fact that pricing of polished diamonds is far behind current prices of rough diamonds. Rough has risen much more than polished have, and this is putting a severe squeeze on our cutters. To make matters worse, the output of diamond-mines is predicted to decrease in the near future. There currently appears to be little chance of change in that prediction. There was a Bloomberg article about this that Paul told me about. It is a short, but extremely elucidating article, which brings all of this into a more comprehendible perspective. According to this article we can expect rough to climb fifteen to twenty percent per year for the next two to three years. Polished will have to rise also, whether we like it or not.

The article can be seen here: http://www.bloomberg.com/news/2011-04-19/-grossly-undervalued-diamonds-outpacing-gold-chart-of-the-day.html

I think that the only thing that could stop further increases is a total meltdown of the world’s financial system. Even the terrible melt down in 2008 had only a limited effect in diamond pricing and prices are already higher than they were before the meltdown.

Wink

 

[Sheherizaad]

Are diamond prices cyclical at all or do they perpetually increase? In other words, is it possible that I'd buy a stone for 1k today, but if I bought it a year from now it would be 2k, and if I bought it three years from now (presuming a "leveling out"), it would be 1.5k?

Sheherizaad,

I have been in the trade since 1970 in one way or another, so I have some great memories of the rediculosity that took place in the late 70’s and up to February of 1980 as every fool tried to be a greater fool than the one who bought before him. Sometimes it is too easy for me to remember this time.

I am happy to have had a nice conversation with Paul Slegers the other day and he reminded me of a few things.

If you look at the current gold price of around $1,500 per ounce, this is nearly half of the inflation adjusted top level around $800 that was reached in February of 1980. In today’s dollars I believe that would be about $2,800.

Of course, it is dangerous to compare current pricing to the bubble-prices of 1980. But it is clear that prices have been relatively stagnant over the past 20 years, and that the major players (like De Beers’) have done a horrible job of getting the most out of their output. Compared to other commodities, diamond-prices are well behind. On top of that, with the low dollar, diamond-prices are even further behind in other currencies, while production happens in those countries, and current growth in demand also comes from such countries.

Further complicating matters is the fact that pricing of polished diamonds is far behind current prices of rough diamonds. Rough has risen much more than polished have, and this is putting a severe squeeze on our cutters. To make matters worse, the output of diamond-mines is predicted to decrease in the near future. There currently appears to be little chance of change in that prediction. There was a Bloomberg article about this that Paul told me about. It is a short, but extremely elucidating article, which brings all of this into a more comprehendible perspective. According to this article we can expect rough to climb fifteen to twenty percent per year for the next two to three years. Polished will have to rise also, whether we like it or not.

The article can be seen here: http://www.bloomberg.com/news/2011-04-19/-grossly-undervalued-diamonds-outpacing-gold-chart-of-the-day.html

I think that the only thing that could stop further increases is a total meltdown of the world’s financial system. Even the terrible melt down in 2008 had only a limited effect in diamond pricing and prices are already higher than they were before the meltdown.

Wink

Thanks Wink. It's such a shame I developed a love for diamonds now as opposed to when I was younger and had more disposable income...

 

[Dreamer_D]

Trying to use this info. to convince my DH that an upgrade now makes more sense than waiting for our 5 year anniversary. His question, "Why would we buy ANOTHER diamond?" My answer of "Because I don't ever want to trade in my original e-ring diamond" hasn't thus far been convincing enough. At least he said he'd think about it.

You mean batting your eyelashes and saying please doesn't work?

Oh, I wish it did, all right! How DO people convince their DHs to upgrade so soon? I can see 10, 15, 20 year upgrades as making some kind of sense, but we're not yet at the 3 year mark...

To me it is not about how long you have been married at all. It is simply a matter of finances and how you want to portion your disposable income on different categories of luxory. Some like vacations, or cars, or clothing. I like diamonds, DH likes golf. So we spend our disposable income on diamonds and golf. It is not sentimental for us, and not assigned to marriage milestones.

 

[Dreamer_D]

I agree, Joe, with your basic idea, if not your exact fact scenario. We are in a commodities bubble right now, as governments struggle to get their debt situation under control -- and this is not just about the USA's debt; this is playing out all over the world. Capital has moved to precious metals and other commodities in response to this uncertainty, and commodites prices are in speculative territory, imho. This is very similar to what happened with the housing bubble, without as much fraud on the part of the banks (perhaps). And eerily similar to the time Black Jade is referring to during the late 1970s and 1980s. I own a book written during that time entitled "How to Speculate in Gems and Diamonds" or something like that. It's a relic from another speculative period in the commodities market. Maybe I'll get that book out and quote some of it's more memorable (and false) predictions for you.

Diamonds are part of this commodities bubble, and the increases in consumer demand from emerging markets along with planned restrictions in supply certainly add to the bubble. But...it's a bubble, folks. Though bubbles can and do last for a while, they are not sustainable in the long run. And bubbles are notorious for feeding into "panic" mentality: Shortages! Buy now! Prices are going up!

No way am I buying another "new" diamond until this works itself out. There's a lot to be had on the second-hand market, and if you educate yourself, like all of us have on PS, you can find decent stones among the mall dreck that's out there. If prices in the diamond overhang (read used and second-hand) market start to increase, then I'll believe that this is more than a short-term bubble (short-term meaning a few years).

But right now, you and I can still take our AGS 0 and GIA Ex, good color and good clarity diamonds to our neighborhood pawn shops and expect to receive about 25% of what they're "worth," so I remain a skeptic about the true "value" of diamonds.

There are still many bargains to be had in the colored stone market, and I'm not above wearing sterling silver. So that's the direction I'm headed next for my jewelry fix

Call me a cynic -- end of rant.

Your thinking got me thinking Lula... I started a thread on the topic of buying on the secondary market, I hope lots of PSers will contribute!

https://www.pricescope.com/community/threads/tales-from-the-secondary-diamond-market.159922/

 

[Amys Bling]

 

[daftKow]

GREAT discussion here! I'd like to bump this if possible.

I'm an economics student so I'm really interested in this too. From the data, it really does look like a bubble (much like the housing market up here, almost mirroring our southern neighbours ... sigh).

I was actually thinking about this today.... If I were to buy now-soon (within a year); vs a bit later (2 or 3 years) - would it be better I finance the stone at a decent rate (maybe an LOC @ 4-6%) or just save my money in a HISA and buy in cash? Would the diamond price/cost rise to more than the cost of borrowing?

I'd like to reread this entire discussion when I'm a bit more awake

Cheerio.
d