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Diamond Prices to Remain Firm This Year

Mar 15, 2012 8:22 AM   By Dilipp S Nag
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RAPAPORT... Diamond prices, which have remained strong following a cycle of auctions in 2012, are expected to remain firm this year due to strong demand from India and China, coupled with an improving macro-economic outlook for the U.S., according to Goldman Sachs.

Analysts Eugene King and Fletcher Tully said, “We also expect stronger demand from India as the rupee has appreciated by 6.3 percent versus the U.S. dollar year-to-date,” lowering the price in the domestic currency for Indian consumers.

In addition, the Reserve Bank of India (RBI) expects the lowering of the reserve ratio to add $9.6 billion in lending capacity and should ease access to funding, which is critical for diamond cutters and dealers in India given their requirements for working capital, they added. The RBI announced a cut to the official cash reserve ratio (CRR) by 75 basis points to 4.75 percent on March 9. CRR is the percentage of deposits that commercial banks must keep with the RBI.

Analysts also stated that China's plan to have a more consumer driven economy should provide a boost for the industry. “Coupled with the expected cut to taxes on imported luxury items later this year, we believe the diamond market in China is poised to experience an extended period of strong demand,” they explained.

Goldman projected that the fundamentals of the market support a prolonged period of tightness and increased its assumptions that diamond prices would increase by 5 percent for 2013 and 2014. It added that mid-tier miners, Petra Diamonds and Gem Diamonds for example, will deliver strong growth for investors.
Tags: China, demand, diamond, Dilipp S Nag, Gem Diamonds, goldman, India, Petra Diamonds, prices, Rapaport, US
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