Diamonds are forever – Definitely one of the most popular proverbs used by the marketers. Well, practically speaking, it is quite a hard stone so it will probably last for a long time. But financially speaking? Is it durable in nature? Will it hold good or increase in value over the years? If we look at the data of the past 30-40 years or so as well as the current diamond price index, unfortunately, diamonds are probably not forever as is claimed.
A bit of a background:
A popular diamond industry benchmark, the Rapaport Diamond Index, states that the prices of top quality diamonds have gone down by as much as 80% in the last 35 years. And this collapse is real time, in inflation-adjusted terms. For example, if a diamond cost $6000 in 1978, as per the index it costs around $11,000 now. Even though this might look like an increase, but if one was to adjust it against the inflation, then the stone has actually lost about half its value in reality!
Diamond prices had again picked up during 1980, but after the market crash in that year, it reached lows and from then have not really gone up again. They have kept up with the inflation, but if one was to include all the related costs – broker’s fees, commissions, retail percentages, insurance costs, etc then the prices are still very much in the abyss. As a comparison, people who had invested in government bonds or stock-index funds, have multiplied their money several times.
The recent past:
Going a bit forward, if we look at our recent past, just 9 years ago, world famous diamond producer De Beers opened Snap Lake – its celebrated landmark project in Canada which was their first underground diamond mine outside Africa. By 2014, $2.2bn had been spent on development and operations. However, not even a single diamond is now produced at Snap Lake and last year, the mine was closed along with a massive 400 job cuts. The family responded that they are facing the worst diamond market downturn in years.
This temporary close down of the mine basically sums up the issues faced by the diamond industry in current times. The downturn gained momentum last year and has resulted in considerable financial pain for all stakeholders including miners, dealers as well as retailers.
The current price fall:
Coming to the present, according to Rapaport’s report in January 2017, the average price of 1-carat diamonds fell by 5% and of 3-carat diamonds by 8.5% in 2016. In the Indian context, after PM Mod’s Demonetization move on November 8th, where high value bank notes were illegitimated, diamond sales suffered all the more in the fourth quarter.
Since demonetization wiped out 85% of money in circulation, orders from local jewelers faced a huge dent. Domestic Indian demand saw a huge fall in demand even with the wedding season and valentine’s season being at the forefront. Average price of half carat diamonds and one-carat diamonds fell another 4.8% and 3% respectively in the fourth quarter. Only the 3-carat diamonds were seen to hold their stand with a 1.4% price rise over this period. Rough diamonds faced the same fate as that of their polished counterparts.
Thus, it can be safely concluded from past data that irrespective of what marketers say, diamonds might not be a woman’s best friend after all, and definitely are not forever!