Rapaport Magazine

Hong Kong Market Report

Diamond Price Volatility

By Gaston D’Aquino
RAPAPORT... The March Hong Kong International Jewellery Show run by the Trade Development Council (TDC) was extremely successful, despite all the uncertainties looming over the world economy. Other March shows in Macau, Shenzhen and one held at the airport in Hong Kong did not do well, as attendees preferred to concentrate their buying on TDC’s Hong Kong show.

Loose diamonds did well at the show and buyers settled down to business very quickly. Some buyers were at first resistant to the increased prices, but exhibitors were anxious to make sales and did manage, after some tough negotiations, to begin closing deals. Once sales started, it became almost hectic in some booths as buyers competed with each other to get the goods they needed.

Indians Dominate
The biggest buyers were the Indians, who once again dominated the show. Ironically, Indian buyers come to Hong Kong to find good buys, while Hong Kong dealers are finding their good buys from Indian manufacturers exhibiting at the show.

Diamonds cut in India, and certified by international gem labs, such as Gemological Institute of America (GIA) and International Gemological Institute (IGI), are finding a good market in Hong Kong. These diamonds are usually cut from cheaper rough and, therefore, Indian manufacturers are able to sell them at a lower price than those cut in other diamond-producing centers. This is more evident in VS and SI clarities, which are not popular in the local Indian market. Higher-clarity goods have always demanded a premium in India.

Even though dealers fully appreciate that these diamonds are not as good, they feel that they can at least make a better margin, especially in recent months when diamonds have been becoming more expensive by the week. Since the certificates do not differentiate between diamonds cut from rough of different origins, the Indian goods will continue to become more popular.

Some of the more serious gem labs for colored stones usually give a grading that denotes the origin of the rough. Perhaps there might come a time when this will also apply to diamonds.

Colored Diamonds
Colored diamonds have also seen new color grades introduced over the years, the highest grade now being vivids. It has been reported recently that the vivid color grade from particular mines is being used to justify higher prices, even if this is not mentioned in the certificates.

Prices for fancy colors have risen dramatically, fueled by the record prices achieved at auctions for rare fancy colored diamonds. Pinks and blues are always in demand, and are becoming more and more difficult to find.

Other fancy colored diamonds have risen in tandem with these, but it has become very evident that a stone must show strong colors and faint-colored fancy stones are very difficult to sell. Buyers are not prepared to pay the big bucks for a stone that merely hints to have a tinge of a fancy color. While the top fancy colored large diamond will demand hundreds of thousands per carat, a faint of the same size for more than $50,000 per carat still comes up to serious money.

The recent increase in the Rap list reflects the present speculation in rough diamonds and the dropping value of the U.S. dollar. While it is true that there will always be premiums during speculative times, a rise in the price list, which is a point of reference for the diamond trade, accredits the level of prices. Premiums can come and go and no one is the wiser, especially the consumers. While it is easy to show consumers a list of prices going up, it becomes a problem when the list shows that the diamond they bought a few weeks ago is now worth less.

Prices for gold, oil and other raw materials all reached record highs and it was presumed that diamonds would also go only one way — up. But, in recent weeks, there have been signs of a very quick depreciation of world wealth, as large institutions have gone bankrupt, causing a massive loss of confidence. Almost simultaneously, the prices of gold and oil, as well as the other commodities, started to tumble. Will diamonds be different; will they be immune to the downward pressure?

Large stones remain scarce and demand is still there, but there is a certain amount of confusion with the introduction of the 10-carat price grid. Buyers were used to premiums on the 5 carats. Some are even asking, why not introduce a price grid for 6, 7, 8 and 9 carats?

Demand for regular diamonds continues to be strong but there might be some downgrading of either size or quality to meet lower price points.

The Marketplace
• Demand for large diamonds is still strong.
• High colors in D-E in SI are becoming more popular.
• Demand continues to be very strong in H-J colors in all sizes, better clarities 
  and VVS.
• Demand for setting sizes is sluggish and is expected to weaken during 
  coming summer months because of the depressed U.S. market, gaining only 
  toward the end of 2008.

Article from the Rapaport Magazine - April 2008. To subscribe click here.

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