Rare diamond prices soar as dollar weakens
By David Brough
BuzzPermalinkLONDON — Polished diamond prices are likely to be volatile this year due to a squeeze on the American middle class, but demand for larger, rare diamonds is booming as the number of multimillionaires rises, a top diamond broker says.
A fall in the value of the dollar, in which diamonds are priced, has increased investment in diamonds as a hedge again inflation, said Martin Rapaport, one of the world's leading diamond consultants and entrepreneurs whose price list is used as a benchmark for the wholesale trade in polished diamonds.
The wholesale diamonds market has seen sharp increases of up to 25 percent in extremely rare gemstones and Rapaport has adjusted his price list to catch up with big premiums that dealers were paying above his prices.
The price of an extremely rare, almost colorless, high clarity, round diamond weighing 10 carats has soared to $170,600 per carat, according to the latest Rapaport data, up 25 percent from a month ago.
Last month, Rapaport took the unusual step of issuing a special notice to the industry urging them not to raise prices.
"The higher prices published in the May 23, 2008 Rapaport Price List do not reflect a sudden change in diamond prices, but rather adjustments made to reflect the level of premiums in the trading markets," the special notice read. "We do not believe there is any reason for suppliers to raise prices based on these adjustments."
Rapaport said the buoyancy of prices for rare diamonds may not be sustainable due to volatile economic conditions, like the risk of rising U.S. inflation combined with the credit crisis and squeezed incomes in the American middle classes.
"The U.S. middle class jewelry buyer is toast - he doesn't have the money," Rapaport said in an interview last week. "He is living off paychecks."
However, at the top end of the market, demand for the rarest diamonds is rising as the number of multimillionaires increases globally, especially in commodity-rich emerging markets like the Gulf, oil-producing South American countries, Russia and Eastern Europe.
The "demand for big stones is going up consistently," Rapaport said. "These prices are no longer speculative. They have been accepted by the market. The weakness of the dollar created a situation where the cost of diamonds in euros went down."
But Rapaport said he did not see the rally in prices of top-tier diamonds running out of steam soon.
"The bubble is years away from bursting," he said.
Gold prices have slipped from recent record highs as the dollar has strengthened. Gold typically benefits from a softer dollar, as it is bought as a hedge against the currency's weakness.
Just as the prices of wholesale polished diamonds traded among dealers has soared, the auction house market has achieved record prices per carat, as the superrich appear to have an insatiable appetite for the rarest gemstones as a status symbol.
Laurence Graff, a billionaire who has a store on Bond Street in London and in many other chic spots around the world, regularly appears at magnificent jewelry auctions and snaps up diamonds at ever more dazzling prices.
At a Sotheby's auction in Geneva in May, he bought a pear-shaped 3.73-carat blue diamond for 5.2 million Swiss francs, or $4.93 million, setting a record per carat for any gemstone.
The wives and girlfriends of the world's wealthiest people are piling on the pressure.
"The higher the price, the more she wants the diamonds," Rapaport said. "The fact that they are very hard to get makes them more desirable."
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