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Diamonds and a worldwide financial crisis

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glossnpolish

Rough_Rock
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I know this discussion has been made several times over. More recently it was with regards to a slowing US economy. But the page has turned again, and it''s now turning into a worldwide crisis. We see the major central banks interest rates free-falling.

With almost every major economy feeling the impact, will the price of diamonds continue to stay impervious? No reference to "branded" or "named" diamonds please... we''re talking regular consumer level diamonds, from melee to 3-4caraters.

Thanks!
 
No one really knows at this point.
There isn''t anyone strong enough to buy them up off the market and keep prices high like happened in the past.
 
Although the markets are in a mess, the US Dollar is not doing badly against the value of other currencies in recent weeks. What happens with diamonds is very complex and has much more to do with exchange rates than you might think. If 1/2 of all the money in the world is lost in the market disruption, diamonds will possibly remain about as relatively costly as they have been although their actual price may be somewhat less. What you think is costly today, will still seem costly even at the reduced price, since you will have less money to spend in your pocket, too. As demand falls, asking prices tend to chase them down, but there are some very rich people and countries putting durable things which people hold as valuable away into their vaults.

Really small diamonds cost less today than they did twenty years ago. When you melt used gold jewelry the tiny diamonds are often left right in the metal because they have so little residual value that removing them carefully is a wasted effort. If we keep seeing the buying power of the middle class eroding, there may come a time where diamonds of even larger sizes have little second hand value just because there are so many fewer consumers. Diamonds of 2 carats and more likely won''t suffer from such a situation, as they are far more scarce.

This is far from a complete answer, but I''m sure others will offer additional opinions and advice. Contrary to what seems to be happening, the world probably is not coming to an end. A reshuffling of the deck is taking place.
 
Here are some live stats
http://www.polishedprices.com/Content/NewsDetails.aspx?NewsId=1000005653 shows a slight rise up until Monday

A tiny drop in IDEX 5ct rounds - but of a ver high growth over the past yar
http://www.idexonline.com/Drivers_Composition.asp?id=12

But across all sizes there is little real change
http://www.idexonline.com/Diamond_Index_Drivers.asp

One of the very large Belgian diamond banks has been stabalised by a government backed buy out. I think they do more than 1/3 of the diamond companies loans there. Other large players in banking are Indian and they will certainly be supported.

Australia''s reserve bank dropped interest rates by a whopping 1% - I am sure more will follow, but US rates are so low they would need to be negative (like Japan in the early 1990''s) to make an impact. But then giving Wall street 700B$ is pretty much the same I guess.

I am watching to see what happens. But so far my diamonds all went up bcause our AUD$ crashed!!!
 
Let me give you an overview from the trenches. Price-swings are first noticed in the big trading centers, and with Antwerp being the major center for both rough and polished diamonds, I have been following this with much interest.

However, one cannot answer this question without first giving some background. First, one needs to understand that the market of rough and polished diamonds are separate markets, and that there is no immediate direct link between prices in both markets. In the past years, rough overall has become much more expensive, and the prices of polished have not followed suit.

Here again, one must make a distinction between various markets (sizes and qualities) of polished diamonds. Prices of the bigger stones (2Ct up, and more important 5Ct up) have soared in the past year. However, if one searched such a stone for a consumer, it was very hard to find one. It may have been that the majority of these price increases were the result of inter-trader-selling, and not of sales to consumers, a kind of speculation of some sort.

Average size-goods increased in price in the last years, but this rise was not dramatic. And smaller size-stones went in both directions, up and down.

Currently, since the end of August, pricing of polished diamonds has taken another direction. Basically, the move is the opposite of the near past, with big size stones plummeting from their exaggerated price-level. Average-size-goods (0.70 to 2.00, let''s say) are experiencing a small decline, but mostly in average to lower cut-quality. The direction in the best qualities is different, but that is a result of the rough market, which I will explain below. And in smaller sizes, the direction is unclear again. All in all, I would say that the price-effect in the market of polished diamonds is minimal, with the exception of the biggest stones.

The market of rough diamonds is much more volatile, and one can expect much bigger swings there. In the past year, prices of rough overall have soared, up to the level that rough was too expensive for the cutters to make any margin on it. Estimations are that rough was generally 20% over-priced, compared to the price of the resulting polished diamonds. I can vouch for that: cutting diamonds was a no-margin-operation for the past year, and it was very difficult to just hang on.

Current estimates are that average rough pricing is 20% less than before the August-holidays, thus re-creating a normal operating-margin for the cutters. However, this is the pricing at which rough traders and producers would like to sell right now. With the season over for cutters right now (current production will not reach the market before the X-mas-season), Diwali in India and jewish holidays, most cutters are reluctant to buy, and the forecast is that rough prices will need to go down even further. If this is true, the next year might become a good year for cutters. High time, if you ask me.

Finally, one last info on the market of average size (0.70 to 2.00) high cut-quality goods. The majority of these stones come from a high-quality rough in which De Beers'' still has a high portion of the supply. Weirdly enough, in the past year, pricing of De Beers'' in this size-quality-category was about 15% below the average rough market. In our case, as we are not a De Beers'' sightholder, we had to pay our rough 15% more than most of our competition. In August, De Beers'' adjusted its pricing, and in this category, pricing became more in line with the average rough market. I see this translated in recent price increases elsewhere.

In the current decreasing rough market, I foresee De Beers'' pricing adapting slightly to the lower average market, but their room to maneuver is limited. Probably, this category of De Beers'' rough will be more expensive than the average rough market for some time. Generally, sightholders swallow such bad periods, because continuing in the De Beers''-system is very important for them. As such, I do not see prices of high-quality average sizes decrease in the near future. There might be a reduction in supply of these goods, but that will only strengthen the current price-level.

All in all, if the current trend continues, I hope that you will be happy for me, since we might finally make some profit after a few years of very harsh markets.

Live long,
 
Terrific information Paul.
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Thanks

Neil Beaty
GG(GIA) ICGA(AGS) NAJA
Professional Appraisals in Denver
 
Definitely Paul.

Something else that’s interesting to consider. As an overseas company we pay our operational expenses in Euros. Meanwhile the majority of sales are in US Dollars... So our profit margins fall with a weaker dollar but expenses at HQ remain the same. As you can tell from Paul’s post our team is experienced enough to foresee these things and plan appropriately - for instance, we have also thrived by channeling part of our production into warmer colors and stones with fluorescence - but it’s a good example of how a declining US economy may impact operations abroad. Of course, it’s not all bad: Paul likes to tease me that when the US dollar goes down I am working for cheaper and cheaper.
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Hmm. I may start taking my salary in gold bullion. Paul, do we have any gold mines online yet?
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I think what some ordinary folks are wondering about is are we going to see some real bargains around maybe from the second hand market, tough financial situations, shops going broke etc. I am specifically talking about the diamonds that make up most of the market, not the top 1% of super excellent cut etc.

Im also wondering myself if consumer demand for diamonds will go down in these bad economic times from having less to spend and or/ a genuine shift in focus or priorities.


I agree that the world is not ending. But it is interesting to see how diamond prices fit in with current events......especially the fact that trillians of dollars of wealth have been lost worldwide with frightening speed.
 
Date: 10/9/2008 8:41:04 AM
Author: Paul-Antwerp
Let me give you an overview from the trenches. Price-swings are first noticed in the big trading centers, and with Antwerp being the major center for both rough and polished diamonds, I have been following this with much interest.

However, one cannot answer this question without first giving some background. First, one needs to understand that the market of rough and polished diamonds are separate markets, and that there is no immediate direct link between prices in both markets. In the past years, rough overall has become much more expensive, and the prices of polished have not followed suit.

Here again, one must make a distinction between various markets (sizes and qualities) of polished diamonds. Prices of the bigger stones (2Ct up, and more important 5Ct up) have soared in the past year. However, if one searched such a stone for a consumer, it was very hard to find one. It may have been that the majority of these price increases were the result of inter-trader-selling, and not of sales to consumers, a kind of speculation of some sort.

Yup..., now a days you have no problem finding these type of Diamonds as dealers are freely displaying those where previously they were hidden in the safes...
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(waiting for further price increases
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), now the question remains in who's hands these Diamonds are held??? Are they in financially strong hands (in this case prices will stay pretty much a float...), or in weak hands (Companies with heavy debts), (in this case start opening the parachute
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)


Average size-goods increased in price in the last years, but this rise was not dramatic. And smaller size-stones went in both directions, up and down.

Currently, since the end of August, pricing of polished diamonds has taken another direction. Basically, the move is the opposite of the near past, with big size stones plummeting from their exaggerated price-level. Average-size-goods (0.70 to 2.00, let's say) are experiencing a small decline, but mostly in average to lower cut-quality. The direction in the best qualities is different, but that is a result of the rough market, which I will explain below. And in smaller sizes, the direction is unclear again. All in all, I would say that the price-effect in the market of polished diamonds is minimal, with the exception of the biggest stones.

I agree with a "plummeting" potential in the near future..., but as for now..., I notice a big spread between the prices buyers are willing to pay and sellers who are willing to sell..., time will tell who breaks first..., as I write these words..., the market is frozen as of now..., no deals are being closed on these BIG rocks as of yet!

The market of rough diamonds is much more volatile, and one can expect much bigger swings there. In the past year, prices of rough overall have soared, up to the level that rough was too expensive for the cutters to make any margin on it. Estimations are that rough was generally 20% over-priced, compared to the price of the resulting polished diamonds. I can vouch for that: cutting diamonds was a no-margin-operation for the past year, and it was very difficult to just hang on.

20% on the ABC goods..., the larger (10.8 carats+) high quality and genuine fancy colored rough went spiraling out of proportions..., but I dont hear any rough buyers telling me they can buy these much cheaper yet..., we must remember that as of now..., no rough producers are accumulating any stockpiles... (as DeBeers did in the past).

Current estimates are that average rough pricing is 20% less than before the August-holidays, thus re-creating a normal operating-margin for the cutters. However, this is the pricing at which rough traders and producers would like to sell right now. With the season over for cutters right now (current production will not reach the market before the X-mas-season), Diwali in India and jewish holidays, most cutters are reluctant to buy, and the forecast is that rough prices will need to go down even further. If this is true, the next year might become a good year for cutters. High time, if you ask me.

Finally, one last info on the market of average size (0.70 to 2.00) high cut-quality goods. The majority of these stones come from a high-quality rough in which De Beers' still has a high portion of the supply. Weirdly enough, in the past year, pricing of De Beers' in this size-quality-category was about 15% below the average rough market. In our case, as we are not a De Beers' sightholder, we had to pay our rough 15% more than most of our competition. In August, De Beers' adjusted its pricing, and in this category, pricing became more in line with the average rough market. I see this translated in recent price increases elsewhere.

But we need to take into consideration that DeBeers premiums on (rough) boxes where eliminated which calls for a 7-18% discount for the secondary (producers) market...

In the current decreasing rough market, I foresee De Beers' pricing adapting slightly to the lower average market, but their room to maneuver is limited. Probably, this category of De Beers' rough will be more expensive than the average rough market for some time. Generally, sightholders swallow such bad periods, because continuing in the De Beers'-system is very important for them. As such, I do not see prices of high-quality average sizes decrease in the near future. There might be a reduction in supply of these goods, but that will only strengthen the current price-level.

All in all, if the current trend continues, I hope that you will be happy for me, since we might finally make some profit after a few years of very harsh markets.

Yes..., I believe just like you that interesting times are ahead and will give a chance to re-coupe some of the hard years cutters have gone through....
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Live long,
All and all..., the big Q right now is debt..., if a Company has heavy debts they are not in a good place...., but if a Company is pretty much liquid these days..., a lot of opportunities will rise...


Like I wrote many times..., interesting times ahead
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Date: 10/9/2008 11:56:57 AM
Author: DiaGem
All and all..., the big Q right now is debt..., if a Company has heavy debts they are not in a good place...., but if a Company is pretty much liquid these days..., a lot of opportunities will rise...
I think that is going to be a huge issue for all retailers can they get the credit to stock up for the Christmas rush and survive.
Getting a line of credit renewed is next to impossible right now even with a perfect credit history and a very profitable company.
If it don''t ease up a lot of retailers are toast.
 
Date: 10/9/2008 12:10:42 PM
Author: strmrdr

Date: 10/9/2008 11:56:57 AM
Author: DiaGem
All and all..., the big Q right now is debt..., if a Company has heavy debts they are not in a good place...., but if a Company is pretty much liquid these days..., a lot of opportunities will rise...
I think that is going to be a huge issue for all retailers can they get the credit to stock up for the Christmas rush and survive.
Getting a line of credit renewed is next to impossible right now even with a perfect credit history and a very profitable company.
If it don''t ease up a lot of retailers are toast.
Yep..., thats where financially strong dealers take advantage with the "MEMO" strategy...

I hope the memo business would evaporate all together..., bad for this industry...
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