Diamonds have always been an integral part of engagement ceremonies worldwide. Young couples consider diamonds the major expression of everlasting love and passion and the most popular option for engagements and weddings. According to recent figures, diamonds are included in over 90% of engagement rings and 80% of wedding bands in the US.
Perceptions that young people are less interested in diamonds as a way to express their love than prior generations have been disproved. Millennials spend more on an engagement ring than the general market average in the United States. Younger customers, on the other hand, have distinct tastes that influence product selection. Millennials like unique, design-driven jewelry, which frequently implies a larger overall carat weight but a smaller center stone. Younger couples are more inclined to shop at stores that cater to a broader range of product designs and provide more customized or customizable alternatives.
However, the outbreak of COVID-19 and the mass-scale production of lab-grown diamonds—considered a less expensive but chemically and structurally indistinguishable substitute for their natural counterparts—seem to have affected the prices of naturally occurring mined diamonds.
The authors of a recently published research work concluded that COVID-19 and the resulting lockdowns worsened the natural decrease that occurred during the scheduled decommissioning of big, exhausted deposits. The closing of Australia’s Argyle mine in November 2020, which was responsible for up to 10% of world diamond output, was a significant milestone for the whole diamond sector.
But despite these disruptions, the industry has hardly skipped a beat.
Growth Trajectory this Year
According to Edahn Golan Diamond Research & Data, overall jewelry sales in the United States increased by 41% from January to May this year, amounting to $32 billion, from $22.7 billion in the same time frame in 2019. In particular, jewelry sales in May set a new monthly high of $8.6 billion, a 52 percent rise over May 2019.
Diamond jewelry will accompany you on your journey, which you would ideally wish to last forever. American customers have a ravenous taste for diamond jewelry, as stated by Edahn Golan, and given the recent jump in their popularity, diamond jewelry sales climbed 30 percent from March to May 2021 compared to the same time in pre-pandemic 2019.
Edahn Golan further added that “consumer [diamond jewelry] purchases this year are at record levels. These purchases are also a far more significant share of consumer expenditure. This is testimony of our ingrained need to celebrate life.”
De Beers’ Report
This growth notion is backed up by De Beers Group’s solid first-half 2021 financials. De Beers reported overall revenue of $2.9 billion, including $2.6 billion in rough diamond sales. It should be noted that De Beers is the world’s top supplier of diamonds to the jewelry industry and a jewelry retailer under the De Beers Jewellers and Forevermark brands.
The first half of 2021 results blew beyond the $1.2 billion mark set in 2020 and were 13% higher than the same time in 2019 ($2.6 billion). The price per carat increased by 13% to $135 with a unit cost of $59, outperforming the same time in 2020 when it was $119 with a unit cost of $62. De Beers’ experts calculate the unit cost by dividing consolidated goods and operating expenses, excluding depreciation and special operational items, by carats recovered.
According to Golan’s research organization, the average size of a set diamond grew from 1.06 carats to 1.22 carats in the previous two months, indicating that the current increase in carat price is helping the diamond jewelry industry. Consumers desire more, larger, and more expensive diamonds, per an official from the research wing.
Potential Future Challenges
It has been predicted that numerous problems can surface in the diamond jewelry sector, given the rising cost of wholesale polished diamonds and early indicators that customer enthusiasm is waning.
Polished diamond prices have been on a near year-long rally, climbing more than 18 percent since they reached a record low in July last year, as opined by Golan. However, there are growing fears that this slingshot trajectory is nearing its top and that the industry is in the midst of a diamond price bubble.
The recent rise in polished stone prices, which hit a 33-month high in May, was excellent news for diamond sellers and jewelers who can now charge more for their wares. Considering the fact that the diamond market had not experienced significant price increases since the early half of 2011, this trajectory is unmatched in many regards.
While there are plenty of raw diamonds available, polished stones are in short supply. De Beers sold 19.2 million carats of raw diamonds in the first half of 2021, surpassing rough diamond sales at the same time of 2019 (15.5 million) and 2018. (17.8 million). However, De Beers has cautioned that India’s cutting and polishing capacity has been curtailed and that there is a backlog in polished diamond grading in important markets.
Concerns about the future supply of polished stones have prompted jewelry manufacturers and merchants to stockpile supplies, particularly as post-pandemic demand for diamond jewelry soars. In recent months, retailers have been complaining about low supplies, which is why they bought with a little more zeal, Golan remarks.
Every Rise has a Fall
Golan is widely recognized and respected for his extraordinary ability to perceive what lies beyond the horizon, having spent over 20 years following the diamond industry’s ebb and flow. Therefore, the diamond jewelry business should pay attention to his warning, implying that diamond prices may be nearing a tipping point. According to his study, sales of diamond jewelry at specialist merchants plummeted by the low double digits in May, while sales of all jewelry goods declined by a single point.
Consumers’ current indulgence in diamond jewelry, opined Golan, might be explained by money accrued when they were stuck at home in 2020, as well as recent indicators that credit purchases are on the rise.
Using credit is a time-honored habit in American consumerism, but it has its consequences. For instance, relying on credit leads to higher costs, while purchasing at a high rate leads to supply rivalry and shortages, resulting in price increases. The economy’s cyclicality indicates that today’s high demand will be followed by falls tomorrow.
Set against a backdrop of rising prices across the board, the general CPI increased by 5.4 percent last year, with jewelry up 12.3 percent. It has been cautioned that reckoning might be on the way, as evidenced by a drop in diamond jewelry sales in specialized retailers in May.
Will a combination of high diamond pricing and inventory overflow result in a decline in diamond prices if buyers are starting to take a break from diamond jewelry, inquires Golan? In light of the recent developments, it is far from a far-fetched prospect.
In every market, price volatility is unavoidable. It is pleasant to see a resurgence after such a long period of decline, and understandably, it is now in the industry’s hands to sustain diamonds’ power and continue to drive growth. A diamond price bubble will hopefully be avoided if careful control is maintained at all times.