Diamond prices, like most commodity and luxury items had been climbing for years. Large diamond prices in particular have been sky rocketing the past five years due to the imbalance of supply and demand. This year alone, diamond prices were up about 16 percent. However, the global forecasts and now the reality of economic slowdown, are taking their toll on the demand for diamonds.
After seeing the prices of large diamonds begin to fall, the world’s largest producers of diamonds (De Beers and Russia’s ZAO ALROSA) have announced they will cut supplies of rough gems to support prices.
The sight-holders who purchase diamonds from De Beers have requested the supply of diamonds be reduced at the final two “sights” scheduled in November and December. ALROSA has said they will reduce rough diamond supplies as much as 30 percent.
The reduction of rough diamond supply is an effort to keep the price of diamonds steady and thus encourage continued exploration and mining efforts. A sudden, short-term drop in diamond prices would play havoc with the capital-intensive diamond mining industry, causing some business to stop exploration and mining efforts. Then when the economy recovers and the demand for diamonds gets back on its fast track, the supply side would lag the demand side of the industry and cause sharp price increases. De Beers and ALROSA are acting as a moderating agent for diamond prices.
The plummeting stock market and severe credit crisis have caused the confidence of luxury buyers in the United States to drop to its lowest level in four years. Stock prices of luxury retailers like Tiffany & Co have dropped as much as 40 percent this year in anticipation of reduced diamond sales.
Consumers will continue to purchase diamonds as engagements, anniversaries and special occasions continue in good and bad economic times. However, even the wealthy shoppers are being more discriminate about their purchases and shopping for values.
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