Diamonds are Being Replaced: Price Drops

Diamonds have been a hot commodity since the 1800s, especially between couples, as a sign of love and commitment. However, experts say a recent shift in the diamond market may be a reflection of a permanent change in how diamonds are valued by consumers.

Photo byPriscilla Flores/Pixabay

During the shutdown of the COVID-19 pandemic, consumers were not able to spend their excess money on restaurants, traveling, and experiences. So, they turned to online shopping. Many industries saw an uptick in sales because of this forced change in behavior, including the diamond industry. Many consumers had more disposable income than ever before due to eliminated commutes and economic stimulus programs.

This temporary uptick in the diamond market hasn't lasted and has, in fact, now hit a steep decline. According to CNBC, polished diamonds have fallen by almost 20%, while rough (uncut) diamonds have declined by 35%.

Consumer demand has dropped. Experts contribute a few reasons for this. The first reason is that people's priorities shifted when the pandemic was over. The shutdown gave many a new perspective on life. Now, more people than ever want to spend their money on travel and experiences rather than material items.

Secondly, lab-grown diamonds have come a long way in terms of quality and popularity. To the naked eye, they are indistinguishable from real diamonds and cost a fraction of the price. Why not get a larger diamond for the same price?

Third, inflation, coupled with salaries failing to reflect the rise in the cost of living, means people have less disposable income than ever before.

Lastly, there are indicators that the latest generation, Gen Z, does not value diamonds the same way as their predecessors.

The drop in consumer demand means that companies now have a backlog of inventory.

To mitigate the damage and prevent prices from further slipping, producers such as De Beers (the world's largest producer and distributor of diamonds) and Alrosa (Russia's largest diamond producer) are controlling the supply to global diamond markets, including the United States.

Alrosa announced the decision to halt sales completely until November. On the other hand, De Beers, the largest diamond producer in the world, holds 10 sales a year. Until now, they have been known for being very strict about their handpicked buyers accepting all of their contracted allocations at a price set by De Beers. Failure to do so may result in future penalties.

De Beers is now introducing flexibility by removing restrictions and allowing buyers to accept partial allocations and defer allocations. According to Bloomberg, at the latest De Beers sale, what was expected to be a $400 million sale, only brought in about $80 million.

Only time will tell if diamond prices will continue to drop or level out.

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