GUEST COLUMN: A beginner’s guide to diamond pricing

Words by Ehud Laniado

I can hardly express my passion about diamond pricing enough. While 2017 has seen diamond prices continue to decline, I believe that retailers who have a sound understanding of diamond prices will be able to purchase in a more cost efficient way and improve their bottom line.

I believe diamonds are a worthy investment asset – a fact proven when I was privileged enough to sell the Blue Moon of Josephine in 2015, the diamond which fetched $48.4m (£36.2m) and retains the record for the highest price paid per carat for a diamond at auction – $4.1m. (£3m).

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My knowledge of diamonds stems from my fascination with pricing. I began my career in my 20s in the African Bush buying and selling rough diamonds, where I started honing my skills analysing rough diamonds to evaluate their potential polished yield. In 2006, I established my diamond pricing consultancy Mercury.

Within the diamond trade, that is, among miners, cutters, polishers and dealers, there are four key factors which directly affect diamond pricing in the industry.

Firstly, miners. The top three miners Alrosa, De Beers and Dominion, set prices for the rough diamonds they extract from the earth. That said, their prices can be rejected by their clients if they have rising inventories of polished, or if they think the cost of rough is high vis-à-vis the achievable price of the resulting polished. Currently, polishers are under pressure, while retailers and miners are making larger margins.

Secondly, the diamond supply. High production levels of polished diamonds are now outpacing demand and some manufacturers are cutting and polishing diamonds even though this may mean that their inventories will rise. This puts pressure on them to sell at lower prices

Thirdly, the willingness of consumers and retailers to pay for diamonds. As retailers know, consumer choices are based on a complex mix of price, design, quality and the emotion evoked by a piece of jewellery. Often a special occasion and the sentiments around it dominate the entire decision.

Consumer demand, arguably the most important factor, relies on the ability of the diamond and jewellery industries to generate a passion for diamonds and diamond jewellery.

Fourthly, seasonality. Christmas and other holiday seasons generally bolster demand for jewellery as gifts as well as for brides-to-be. The winter holidays usually sees a spike in marriage proposals.

With this very basic understanding of the factors affecting diamond pricing in mind, I advise retailers to buy during slow trading periods.

Overall, diamond prices have been in decline since mid 2014 and recent year-on-year figures from well-known diamond price lists reflect this downward trend. My own pricing platform Mercury shows polished diamond prices of 1 to 30 carat stones are down 2.6%. According to IDEX, diamonds of 0.5 carats to 4.99 carats are down 2.2%, and according to Rapaport 1 carat diamonds are down 6.1%, while Polished Prices says diamonds of 0.3 to 3.99 carats are down 2.25%.

In the past couple of months price declines have lessened. Although the mood is cautious, there is an indication they may inch up as we move into 2018.

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