From Greek mythology to Marilyn Monroe’s Hollywood and clever marketing by De Beers, diamonds have long been lusted over.
But the shiny stones have been losing their shimmer as prices have been in a tailspin.
“The current softness in natural diamond prices is primarily a correction, following what I would say is a record run up in prices that we saw in 2021 and 2022,” said New York City-based independent diamond analyst Paul Zimnisky.
When COVID shut the world down from enjoying experiences, those who could afford it, went shopping.
That demand pushed diamond prices higher.
“All the moons pretty much aligned for diamonds, and it was a really strong period,” Mr Zimnisky said.
“Almost every category of natural diamonds went parabolic to the upside, due to supply shortages, following the stimulus, primarily in the US, during the pandemic.”
Prices for a cut, one carat, natural white diamond, rose 5.8 per cent in the 2020 calendar year then soared 17.4 per cent in 2021, according to the global RapNet Diamond Index (RAPI).
“Now we’re on the other side of that … we’re experiencing a demand shock in the other direction,” Mr Zimnisky told The Business.
Prices started to plunge in 2022, with the RAPI wiping off 10.7 per cent for a one carat stone that year.
This year has been much worse.
From 1 January to 1 November, the price of a one carat diamond fell twice, wiping off 21.3 per cent.
In total, the price of a one carat diamond has seen a 32 per cent decline in less than two years.
For a half carat stone, prices have fallen almost 40 per cent.
Diamond price falls as interest rates rise
Central bank interest rate hikes to cool rising inflation has been a big driver of the price plunge.
“Diamond prices have reacted according to the changing fundamental picture,” Mr Zimnisky said.
The correction started just as central banks began hiking rates.
“Diamond prices certainly are highly correlated with GDP growth,” Mr Zimnisky, a former Wall Street analyst, added.
Perth-based jeweller Rohan Milne has experienced the diamond downswing, and while he said there have been “significant drops here”, the price plunge hasn’t been as bad as in the US.
“They’ve seen upwards of 20 per cent or more drop, potentially, but I think here, we’re probably not seeing such big fluctuations in the price, just because the Aussie dollar has sort of cushioned some of that,” Mr Milne told The Business.
“When the Aussie dollar drops, at the same rate as say, the price of white diamonds in US dollars, we don’t see that big fluctuation because we’re still buying it in US dollars – so that sometimes keeps pace.
“That’s always been the case with gold as well.”
The lab effect
A flight to affordability has been a feature of the diamond market for years, and that’s seen the rise of lab grown, also known as, synthetic diamonds.
In 2018, the biggest diamond trader in the world, De Beers, announced it would start selling the manufactured stones.
“The market was quite astonished that here was the company that spearheaded, maintained and promoted natural diamonds, and yet they had a spin-off of the synthetics,” said diamond consultant John Chapman.
Mr Chapman is a physicist and diamond analyst, who used to work for the Australian diamond company Argyle and is now regarded worldwide for his expertise in the precious stones.
Mined, or natural, diamonds were made under extreme pressure at the earth’s core, sent to the surface by a volcano hundreds of millions of years ago (or in the case of the Argyle diamond mine in northern Western Australia, 1.3 billion years ago), buried under the earth’s surface and then dug out of the ground by miners.
Synthetic diamonds can be made in a matter of days – and to the untrained eye, it’s near impossible to tell the difference.
Mr Chapman said the rise in popularity for synthetic stones, bought at a much more competitive price, has also impacted the price of natural stones.
“It’s compelling for a consumer to be able to have something on their finger or in their ears, which to the unaided eye, or even with an aided eye, you can’t tell the difference. So that’s what the industry is up against.”
Mr Chapman said the marketing juggernaut that is the entry of De Beers – the company that devised the concept of spending two months’ salary on a diamond ring – into manufactured diamonds may have been another marketing ploy.
“There are a few thoughts about what their strategy was there, because they were quite cheap, even for synthetics, they were at the lower end,” he explained.
“There was some speculation that it was a strategy to undermine all the other producers who would have to match their prices, and as a result, probably go broke – and therefore, it might have been a way to destroy the synthetic market.”
Whether there’s any truth to the speculation or not, lab grown diamond prices have indeed, crashed.
Mr Zimnisky’s data shows that in 2016 a one carat lab grown white diamond cost $US5450 compared to a naturally occurring one carat diamond that sold for an average $US6538.
That price difference has now grown much wider.
In 2023 a one carat lab grown white diamond cost $US1355 while a natural diamond sells for an average $US4726.
“The price differential between natural and man-made diamonds is so wide that the products are beginning to attract different customer bases,” he said.
De Beers has now exited the synthetic diamond engagement ring market.
A league of their own
Amid the downturn, there’s one corner of the market that defies the trend, because it’s a league few can afford to be in.
Pink diamonds from Rio Tinto’s now closed Argyle diamond mine in the Kimberley continue to fetch higher prices.
“Back in the day, when they were actually producing, they would say that they would produce a handful of pinks, cut, each year,” Mr Milne said.
“That’s rarity within rarity, no matter what, so you can start to see why they cost so much.”
The Argyle diamond mine accounted for more than 90 per cent of the world’s supply of pink diamonds during its nearly 40-year life.
But less than 1 per cent of the diamonds mined at Argyle, were pink.
Two years ago, Rio Tinto announced the final tender of the most prized pink diamonds, a year after the mine’s closure.
How testing can reveal a rare diamond
In the gem business, knowing a real diamond from a fake is pretty crucial. Diamonds, just like people, have a unique ‘fingerprint’ and the technology to map them out is getting more advanced.
But a few months ago they surprised the market, announcing a new tender, with 87 Argyle pink diamonds, weighing 29.96 carats, as well as two yellow diamonds from its Diavik mine in Canada.
Mr Milne was one of about 80 jewellers and ateliers worldwide invited to bid in the tender.
It is in effect a silent auction, where those who are invited to take part, get an hour or so to view the diamonds at only four locations around the world, then make their offer, without knowing any of the other bids.
That tender process closed in November, but the secrecy around the process remains, as the winning bids are never publicly revealed.
Rio Tinto Diamond manager of sales and business development Heidi Creech said the stones on offer were “in a league of their own”.
“In the past we have seen Argyle pink diamonds in particular, really defy the ebb and flow of economic cycles,” Ms Creech told The Business.
“They have outperformed the equity market year on year for many years and certainly, while of course the economic situation is difficult at the moment, we still expect strong bidding for this event,” she added.
“For Argyle pink diamonds for example, we have seen these sell for millions of dollars per carat.”
Will rarity reign supreme?
Advocates of the diamond market say it’s that element of rarity that will see natural white diamond prices pick up again compared to their synthetic counterparts.
Last year, 120 million carats of rough diamonds were mined globally, but that number is expected to shrink over time as mines close.
“There are quite a few mines like the Rio Tinto ones in Canada, I think they’ve got three or five years left, there are lots of other mines, which must be nearing their end too,” Mr Chapman said.
“There are no new mines on the horizon, and even if there were, they would take a good 10 years before they were in production,” he added.
Mr Milne noted supply is starting to be held back, which will add to the fear of missing out psychology among consumers.
“I have spoken to people in the rough [diamond] end of the market, and the changes that they’re making to ensure that the white diamond market is going to be consistent in its pricing,” he said.
“They’ll probably hold off on some of the rough that’s coming to the cutters, which will mean there’ll be less goods coming back onto the market.
“So kind of similar to OPEC trimming back on maybe some of their production of oil, I would expect that there’ll be stabilisation within the natural diamond market.”
Only time will tell whether the famous De Beers ‘a diamond is forever’ branding will ring true again.
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