All that glitters is not gold. Sometimes it’s diamonds–and that’s what’s putting the sparkle in the eyes of buyers in Asia. Analysts predict that sales of girls’ best friends will top the appetite for the Midas touch, sending prices rising for willing clients in China, India and the Middle East.
Bloomberg reported that demand for the little–and not so little–sparklers is expected to outstrip supply for the next four years, and perhaps will be double that of available supply till 2020, according to a Bain & Co. report that credited the rise to a growing middle class in China and India. Those two countries, along with the Middle East, says Anglo American, controller of the world’s largest diamond miner De Beers, will be responsible for 40% of global diamond consumption by 2015, up from about 8% in 2005.
Edward Sterck, an analyst at BMO Capital Markets, predicted in the report that average prices for rough (uncut) diamonds will likely rise 9% to $145 per carat in 2012; 1.4% in 2013; and 4.8% in 2014. He added that they could continue to rise, adding another 2.6% in 2015 and 3.2% in 2016.
He isn’t the only diamond optimist. Vladimir Sergievskiy, an analyst at Moscow-based Finam Investment, was quoted saying, “We expect emerging nations, first and foremost India and China, to drive demand for diamonds in the upcoming years, while consumption among developed nations is likely to moderate. On the supply side, the commissioning of new mines should be largely offset by depletion of mature ones.”
He added that global demand for diamonds will most likely top supply by 7 million carats in 2016, compared with a 1 million carat shortage this year, and predicted price increases of 9.7% next year, 2.7% in 2013, 3.3% in 2014, 3.2% in 2015 and 3.1% in 2016. This year alone rough diamonds added 24%, according to PolishedPrices.com’s index.
Richard Platt, managing director of U.K.-based WWW Diamond Forecasts Ltd., which provides independent valuations, is of the opinion that rough diamonds will give back some of those gains next year, falling 5.1% in 2012 and holding steady through 2013, with polished stones taking up the slack and outperforming.
While Platt sees gains for rough stones in 2014 of 2.9% and in 2015 of 2.2%, he believes polished stones will add 4.7% in 2012, 9.3% in 2013, 6.6% in 2014 and 4.4% in 2015 thanks to growing Asian demand for diamond jewelry and “flattish supply.”
Gold, on the other hand, is expected by a group of analysts polled by Bloomberg to drop for three years starting in 2013, following a 19% gain in 2012.
Rob Henderson, chief economist at National Australia Bank, was quoted saying, “The current gold price doesn’t reflect the underlying supply and demand fundamentals. It much more reflects an artificial demand for gold as a hedge and as a store of value against inflation. That means the market is prone to a pretty substantial correction sometime in the future.”
He added that that is not the case for diamonds, and says that prices “have not been inflated by artificial demand to the same degree. As countries like China and India keep growing and the size of the middle-class population rises, more people will be able to afford diamonds.”