Colored Stone Market

Posted on August 31, 2022 by Stuart M. Robertson, GIA GG

The market is facing headwinds but demand for fine color remains good. Inflation increasingly is on the minds of market participants but will the recent interest rate hikes cool inflation just as dealers are expressing caution about the upcoming season? The market may cool, but lack of production should also insulate the price structure from declining for the finer grades. During the past two years, gem dealers have, for the most part, been on the positive side of an unprecedented pandemic-influenced market cycle. By most accounts, gem and jewelry sales experienced year-over-year growth and prices rose and remained firm from the 2020 holiday season straight through this year’s JCK Las Vegas Show. Can the trade expect more of the same this holiday season? FIGURE 1. Fancy sapphire is a best seller. A .90 ct. pink sapphire courtesy of Philip Zahm Designs. Photography by Jeff Mason, At this summer’s JCK Vegas Show, dealers expressed optimism about the current state of the industry even as threats to the broader US economy continued to mount. Yet with a level of inflation not seen in the US for decades, gem dealers continued to report a persistent appetite for fine colored stones at both the wholesale and retail level of the market into July—a month that typically the market hits pause. However, by early August, signs of weakening demand were taking shape in the US market. As anticipated, the increased costs of household essentials are starting to hurt the trade. With some households seeing more than a $7,000 rise in the cost of basic necessities com- pared to last year, it was inevitable that consumer confidence would decline. As middle-class consumers dedicate more of their household budget to essentials, there is less left for discretionary purchases. To what extent this will affect business during this year’s holiday season is not yet clear. At publication deadline, there are still too many variables. One scenario is that the Federal Reserve interest rate strategy could get inflation under control, and thus easing pressure on the consumers more quickly than expected. However, as Lynn Franco, senior director of economic indicators at The Conference Board, stated in their July 26 release, “Looking ahead, inflation and additional rate hikes are likely to continue posing strong headwinds for consumer spending and economic growth over the next six months.” If the current situation continues into November, it would be overly optimistic for the trade to expect the same growth in sales seen the past two years. So, what can we expect? Unlike some competing luxury sectors, the gem trade is able to cater to most income brackets. The most active retail price points for jewelry are ranges of $100 and below, $500 and below, $2,500 to $4,500, $4,500 to $7,500, and numerous other ranges that we break out by price points above $7,500. When examining trends within our trade, we primarily focus on data from the middle class and mid and large independent jewelers. This is most representative of the market that Gemworld researches. FIGURE 2. Aquamarine is a best seller. A 2.66 ct. from Nigeria. Courtesy of Fossil Realm. Photography by Jeff Mason, The impact that the current rate of inflation will have on the US jewelry industry is not equal across the various income brackets. For example, consumers that purchase jewelry at price points of $50,000 or more, are likely to be in an income bracket for which the impact of the current rate of inflation is negligible. However, for those consumers that typically spend $2,500 to $4,000 on jewelry, that’s a whole different story. As Roland Schluessel explained, “The effects of inflation always start at the bottom of the pyramid. It first hurts the people liv- ing paycheck to paycheck, but the longer it persists, the larger the group of negatively impacted consumers becomes.” Dealers are reporting that the market has slowed, but most attribute this to typical seasonal summer slowdown coming...

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