By  , Wednesday, August 02, 2006

 JCK Convention, Las Vegas
June 5, 2006
 

 Martin Rapaport on Economics

Martin Rapaport addressed an international audience on June 5, 2006 at the JCK convention in Las Vegas.  His main points were economics, distribution and ethical issues in the diamond and jewelry trade.  Here is our summary of his comments:  

Economics  

Over the last 5 years diamonds in sizes 3cts plus are up 28%.  The 1 ct range is up 10%.  Sizes less than 0.5 ct are up 1%.  The last 24 months echo this, with the smallest sizes actually decreasing slightly.  

Global diamond prices are not rising proportionately when compared to oil, interest rates and the price of gold.  In the US, consumer debt is at an all-time high.  Oil and interest rates are up considerably.  The luxury world is shrinking.  

So, is gold going up, or is the US dollar going down?  

Of course, booming interest rates mean the wealthy get wealthier.  This is why 3 ct and above goods continue to rise in price, while middle goods remain more stable and, in some cases, bleak.  Just as gold has both jewelry and investment implications it is possible that 3 ct and above are rising due to investment demand.  If so, will diamond certificates become commoditized like gold?  Would a future market be good or bad?  

Meanwhile, we must consider the globalization of supply and demand:  China’s purchasing power is going up as the US dollar becomes weaker.  There is a transfer of wealth occurring.  Due to populations and increasing purchasing power, India and China may wind up driving the global diamond market.  

Can the global economy continue to expand without the US fueling demand?  If the answer is yes, the weak US dollar will allow other countries with strong purchase power to drive global demand.  If the answer is no, recession will weaken demand (and prices) until the US wakes up or foreign demand exceeds US demand.  

External economic forces will have major impact on the diamond and jewelry industry in the months ahead.  The boom in oil and gold are not isolated events; they are leading indicators of great changes in the global economy.  

As the negative impact of a weak US dollar shrinks the luxury wallet US wholesalers and retailers will have challenges ahead.

 

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