Price development of diamonds

Consistency and durability – values ​​that not only represent the diamond itself, but also describe its price development just as well. While many assets such as gold or stocks have been characterized by high volatility in recent years, the price of diamonds, on the other hand, is developing more slowly, but constantly increasing.

Stable asset class diamonds

Whether stocks or gold – most capital goods have suffered strong price fluctuations over the last ten years. Only the diamond price remained relatively constant, with an average annual increase in value of four percent.

Since the diamond index was listed by IDEX in 2004, there have only been two notable exceptions: The financial crisis in the summer of 2008 led to a slump of twelve percent compared to the previous year. However, if you look at the price falls in other markets, the price drop on the diamond market was moderate and prices returned to pre-crisis levels much more quickly: While stock and real estate markets had not yet recovered even five years after the crisis, the diamond index had recovered in less than completely regenerated in two years.

In 2011, the market experienced a temporary strong upswing of over 20 percent due to increasing international prosperity and affordable financing options. Apart from these two exceptional situations, the annual fluctuation value of the diamond index is noticeably low: the annual high and low values ​​are never more than seven percent apart.

As of 2019, demand continued to increase...

Different size, different price behavior

The IDEX diamond index is made up of fifteen diamond categories. The one to two carat categories represent the largest share of the overall market and are therefore weighted the most heavily. If you look at the price development of the individual categories, it becomes clear that stones of different sizes develop very differently in terms of price: While diamonds with a size of 0.3 carats experienced price increases in the high single digits, in 2013 diamonds over the 1-carat size experienced price increases in the high single digits. Carat limit recorded price drops of 3-4%. In general, if you are aiming for quick profits, you are best advised to go with stones under 0.5 carat, as these offer not only strong price development but also high fungibility. Larger stones, on the other hand, show a slower price development, but given the high individual price this can pay off and very high profits are possible. Between 2004 and 2008, for example, round four-carat diamonds tripled in price. Prices in these stone categories are generally much more volatile.

IDEX Online Polished Price Index

IDEX is the world's largest online diamond trading platform. Around half a million diamonds, or 80 percent of the total diamond market value, are offered here for wholesale and retail every day. IDEX divides the daily offer prices into 15 categories according to criteria such as size and cut shape, from which the diamond index emerges.

Price development of cut diamonds by size (2004-2014)

Forecasts

In the long term, experts (e.g. McKinsey, Bain) expect a positive price development for diamonds. In addition to increasing demand, this is due to a shortage of supply. Reserves from existing mines will be exhausted in the foreseeable future and no significant new diamond reserves have been discovered in recent years.

Developing a new mine is time-consuming (a decade on average) and costly (approximately $1 billion). First, four phases must be completed when developing a mine:

• The exploration phase including license acquisition and geophysical analysis work
• Initial digging to check the diamond density of the kimberlite and the quality of the diamonds it contains
• The economic analysis of the mining project
• Licensing and fulfillment of environmental requirements

Only then can the infrastructure for developing the mine be created. At this point, it is still not guaranteed that the venture will actually be profitable. Of the approximately 10,000 kimberlite pipes discovered worldwide to date, only 100, or one percent, are profitable.

It is therefore considered extremely unlikely that significant new diamond mines will be discovered and developed within the next 20 years. Accordingly, the supply of rough diamonds is only expected to increase until 2018. From 2019, according to management consultancy Bain & Company, most of the known mines will be exhausted and production will fall by around eleven percent annually.

Demand for rough diamonds in millions of carats

Demand, on the other hand, will continue to grow - by 4.5 percent in 2014 alone, for example, according to the world's largest diamond miner DeBeers. The driving force behind the increasing global demand is clearly the Indian and Chinese jewelry markets. The two emerging nations of India and China together are home to over 35 percent of the world's population. As wealth increases, the desire for western luxury goods also grows - and western-style engagement rings are particularly in demand among many young Indian and Chinese women.

Another contributing factor to the scarcity of supply is that only 20 percent of the diamonds mined worldwide are of the quality of jewelry diamonds. In particular, diamonds larger than two carats or top quality diamonds are very rare. There are only around 750 diamonds between 1.00 - 1.39 carats with quality D (very fine white), flawless, worldwide every year.

Volume to value ratio in the diamond market

In principle, one can assume that prices in the diamond world will rise. Of course, it is not possible to make an exact forecast as to which qualities and which sizes will develop in terms of price and how. Various factors play an important role here. On the one hand, the diamond is a natural commodity and which qualities and sizes will be found cannot be predicted with certainty and on the other hand, the diamond is subject to fashion developments in the jewelry world.

Finally, two further arguments in favor of diamonds as an investment: No other physical asset combines so much value in so little mass and is therefore so easy to transport. In the past, it has always offered security against total loss (you always get something for the diamond, even in the worst of times).