With diamond retailers experiencing a serious downswing in sales, if not filing for Chapter 11 status, or outright declaring bankruptcy, the price of diamond jewelry is dropping.

Diamond dealers are liquidating their inventory in response to fewer customers and pressure from the banks, who want the dealers to move their assets quickly in exchange for cash.

With a volatile economy, it makes sense to hedge your investments and select stable, secure funds and investment properties to back up more risky opportunities. Relatively high value per small size is what makes investing in diamonds an interesting prospect.  But are they?

Diamonds and Diamond Jewelry

The global economic crisis is taking its toll on other fronts: Net polished-diamond exports from Israel declined 11.8 percent in 2008, to $6.24 billion, compared with $7.07 billion in 2007, and net rough-diamond exports declined 2 percent from 2007. The most recent figures from December 2008 and January of this year, indicate a 60% drop in diamond exports.

Bank of America "Under Construction"

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A number of diamond traders are taking a look at what happened to the industry from 1970 to 1980, noticing the similarities in the economic climate then and now, and drawing their own conclusions. They note that when inflation skyrockets and interest rates bottom out, the demand for diamonds rises.

"Is now a good time to buy

Diamond Jewelry?"

Surprising leaps in diamond prices occurred in the late 70’s through the early 80’s, when the prices jumped around 1800%. During that period, the diamond investment market was hot. Consumers believed that top quality diamonds were becoming rarer and that prices would continue to rise. It was certainly true in the early 80’s: In March of 1980, the industry benchmark, a one-carat D-flawless diamond peaked at a staggering $66,000! 

At the same time, the Soviets were considering opening up their supplies of rough inventory in a bid to break the control of the established trading houses.

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In 1981, the market prices began to topple. In September of 1981, the same one-carat D-flawless diamond was selling for $23,000, then hit a low of $12,600 in January of 1986, and was reported at $17,000 in September of 1991. The current price for such a stone is around $24,000 in the retail market.

As the times have changed, Russia is no longer interested in crashing the global markets and is very much a player in maintaining the stability in the international diamond trade. There are interesting new developments ahead: The diamond mining industry in Canada is a growing frontier which, for many consumers, offers a welcome alternative to the issues associated with the conflict diamond markets.
 

The bottom line is that diamond prices do fluctuate and that prices now are exceptionally low.  As always, if your resources are more liquid and you are considering investment options, while now might be a good time to take advantage of the diamond market – except for the larger and most unusual stones, investment diamonds are not a reliable hedge. As for diamond jewelry – the time and the price are definitely right.