Market Nervous…Where Do We Go From Here

Posted on November 1, 2022 by Jon C. Phillips, GIA GG, CG (AGS)

Or as Billy Joel sang: Slip slidin' away; slip slidin' away; you know the nearer your destination, the more you're slip slidin' away... It’s that time of year when markets are supposed to be booming and bristling with optimism for the rapidly approaching holiday season. But not this year. We are experiencing an uncharacteristically slow decline in the diamond marketplace in both price and availability. While the diamond industry is suffering less than many other markets it is feeling the squeeze. There is no enthusiasm in the marketplace and part of it is because the USA slipped into a recession over the summer. Expendable income just isn’t available to spend on luxury items for the average consumer. According to the general definition, when you have two consecutive quarters of negative gross domestic product (GDP) you are in a recession and the USA has had their two. The Stock Market (S&P 500) year-to-date performance is at -23% (Source Forbes). The Feds raised interest by another 75 basis points which has only added to all borrowers’ misery. Diamond buyers are no exception and are slowly backing off new purchases not wanting to go further into debt at a higher rate of interest. All this negative pressure on the USA market, the world’s largest diamond market, is causing a spinoff of negative effects in other major diamond centers. The prices of wholesale diamonds, both polished and rough, are softening and have dropped slowly throughout the last few months with spot prices for polished 1 ct losing from middle single digits percent to nearly -10% since January. It should be noted that the diamond market was in short supply from the second half of 2021 to early 2022, as record demand for natural diamonds in 2021 outpaced new production and existing inventories. That said, diamond prices remain well above pre-pandemic levels and combined with higher production costs, and restrictions on the global trade of Russian diamonds it is expected to support diamond prices going into early next year. In a press release, Paul Zimnisky, a well-know industry analyst, clarified that, “consumers should not expect discounts on natural diamonds this holiday season as jewelers are not sitting on significant levels of excess inventory, although the industry should be better stocked than last year.” The market is still adjusting to all this turmoil and people are just holding off buying compared to 2021. Retailers are only buying for orders and not restocking anything but core merchandise. They are understandably nervous that 2023 will be tougher than 2022. The below chart gives a clear picture of the diamond engagement ring marketplace for both natural diamonds and lab-grown. Interestingly you can see the YoY value of sales for natural diamond engagement rings has dropped almost 50%...

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