When The Rich Stop Buying Luxury: Diamond Prices Tanking (TIF)

The rich are apparently not proving to be immune to the economic slowing we have seen in the past few months. That insatiable appetite for more luxury goods appears to be slowing. The price drop of polished diamonds fell in the third quarter, but the drops appear to have accelerated in the month of September in some instances if you just “straight-line” the price drops.

A report from Rapaport’s RapNet shows just how bad the drop is. The price of certified polished diamond prices fell as dealer trading softened and concern rose about the global recovery. Issues cited were liquidity difficulties in cutting centers and ongoing volatility in the financial markets as economic and political developments continue to fuel caution.

• In September the RapNet Diamond Index for 1.00 ct. polished diamonds fell 4.5% to 99.57 (after a 4% drop in August). For the quarter the 1.00 ct. diamonds fell 8.6%.
• The 0.50 ct. category declined by 4.5% to 36.47 in September (after falling 2.2% in August), and the quarterly drop for the 0.5 ct. stones declined by 7.5%.
• The 3.00 ct. category, the higher high-end market dropped by 0.9% to 168.04 in September. The 3.00 ct. diamonds fell by 5.8%, so the drop in the higher-end looks less than in the “diamond markets for the masses.” The large drop for the high-end larger diamonds came in August.

The only saving grace is that the markets are still up so far in 2011 and up year over year: the 1 ct. was up 22.5% YTD and up 23.7% YOY.

Rapaport titled this last report as “Third Quarter Jitters” and noted that the polished trading is now being driven by retail demand to satisfy current orders. It noted limited trading among dealers. Our own interpretation is rather simple: Jewelers and the buys are not canceling existing orders already made, but this paints a bleak picture for hopes of an upside surprise for the 2011 holidays season and also for 2012.

As for India, “Stretched Indian liquidity continues to impact trading with those cash-strapped Indian suppliers willing to discount.” The biggest comment is here that indicates slow markets ahead: “rough dealer trading is at a near standstill with De Beers goods being offered at deep discounts.”

As for China and Europe: “While Chinese demand for diamonds and diamond jewelry continues to drive growth, the European debt crisis will have an impact globally.”

If anyone knows diamond it is Mr. Rapaport. RapNet claims to have more than 700,000 daily listings of diamonds. That is valued at more than $5 billion in total and the exchange has more than 6300 members globally.

All you have to do is look at shares of Tiffany & Co. (NYSE: TIF). The stock may have bounced nearly 10% from the lows on Tuesday, but at $62.30 today the stock has lost more than one-quarter of its value from the high of $84.49 earlier this year.

JON C. OGG