What are the main factors responsible for diamond prices? A simple question with a very complex answer, as diamond prices are driven by few key factors and in some cases speculation.
The main factor in diamond prices will be the current market demand, medium to long term forecast, the current supply and any back up stock (used to regulate diamond prices by balancing supply and demand). In a healthy diamond market, diamond prices continue to grow at a rate above inflation in a sustainable way, maintaining consumer demand.
When diamond prices escalate to a high, consumer demand slows down as the market is in a speculative mode. One of the main contributors to diamond prices is the cost of mining and processing the diamonds. This includes capital allocation for further development of mining and the capital invested in the mining stage.
Market access to capital by the rough diamond buyers and manufacturers, is the second base to determine the diamond prices. With the rise of cost of capital, the additional costs are passed on to the rough diamonds which increases the diamond prices from the "rough level" all the way to consumer.
The time it takes to cut and polish a diamond, grade the diamond at the GIA diamond laboratories, shipping and insurance all adds to the cost.
It takes an average of 4-6 month for a diamond from mine to the consumer's finger!
With the current growing demand from consumers, diamond prices are likely to rise in value, as the rate of mining and new diamond discovery is lagging with the estimated gap widening to over $3 Billion at wholesale level by 2018. The rise of the middle class in China and India are one of the main reasons diamond prices will continue to rise with over 500 million new customer entering the market. This exclude the USA market and other emerging markets showing steady growth.
Looking back at the history of diamonds and historical diamond prices, diamonds always out perform the stock market with some exclusion. Even when the market took a strong dip, diamond prices held well and maintained their value where paper stock vanished into thin air. The most outstanding category that demonstrated exceptional growth is the fancy coloured diamonds, from blue diamonds, pink diamonds to yellow diamonds, the diamond prices of this category out preform the rest. Exceptional diamonds of over 10ct also preform well and continue to do so mainly due to their rarity in nature specially in high color and high clarity.
The average consumer and jeweller alike are following diamond prices by using the Rappaport Diamond Report as their guide. This report is widely used as a guide for a diamond price bench mark but often misunderstood as there are many factors that determine the diamond prices beyond the 4cs that most are familiar with. The quality of the diamond cut from the table size to the pavilion depth, the ratios between the facets, the UV existence in the diamond, atomic structure (Type 1A, Type 2A...) and other factors.
The output of the world mine combined and the allocation of the rough in the diamond pipe line are crucial as diamond prices closely linked to available diamonds on the free market. If for example, the mine produces rough diamonds suitable for 2ct polish diamonds with 80% in a color range of J-M and 15% G-I, leaving only 1-2% in the D-E color range the diamond prices for this color band will go up. The same can be said on any other size, color, clarity category.
For the diamond industry to maintain its shine, diamond prices need to grow at a table rate of no less 6%-8% per year to beat inflation and to reward investment in the mining sectors where exceptional diamonds will command high diamond prices lifting up profit above the regular stable growth.
We often get the question - Is it a good time to buy diamonds? There is no better time to buy a diamond as diamond prices may seem high today compared to yesterday but tomorrow the price will be higher.
Making sure you choose the right diamond with the right size, color, clarity and price value combination is the key factor in assuring that the diamond you buy today will continue to appreciate in value as time goes by.
Want to know more? Here are 25 interesting facts about diamonds that you didn't know.