The diamonds they may be… forever, but they will hardly manage to replace him in the minds of investors gold as a “safe haven”. While worsening geopolitical tensions, such as the war in the Middle East and Ukraine, as well as the prospect of lower interest rates in the US have contributed to the return of gold as an investment, spearheaded by China, the diamond market is reeling. Prices for natural rough diamonds have collapsed by 26% in the past two years, a trend exacerbated by tepid consumer demand in the US and China as the popularity of cheaper of laboratory diamonds (LGD).
After a brief boom in diamond jewelry during the pandemic, miners are scrambling to reduce the oversupply of precious stones. The Anglo-American De Beers along with Russian Alrosa control two-thirds of the rough diamond supply, with the former saying this week that its sales fell 23% in the first quarter. Additionally, as LGDs capture more market share, their prices have also fallen to around 15% or less versus natural diamonds. Miners spent years arguing that romantic buyers would prefer the allure of rare, natural stones. More and more it now seems that they were wrong.
Synthetic diamonds appeared about 70 years ago, mainly for industrial purposes, but in the last decade they have taken off. By last year they represented 10% of the global diamond jewelry market, according to expert Paul Zimnisky, a trend that created a frenzy among producers. The lower cost of LGDs allowed them to lower prices. In October the WD Lab Grown Diamonds, America’s second largest synthetic stone manufacturer, filed for bankruptcy. It has since had to shift its business from retail to industrial customers.
Gold’s rise is moving to all-time highs, above $2,400 an ounce.
Russian supply has further depressed the prices of natural gemstones. Last year the country supplied 27% of the world’s rough diamonds. Asian and Middle Eastern countries did not participate in trade G7 sanctions against Russian diamonds, which continued to flow to India, a leading center for stone cutting and polishing. Diamond prices meanwhile are falling to almost the same levels as early 2011 and miners are struggling. Smaller producers such as Lucara of Canada and those listed in the United Kingdom Petra and Gem Diamonds they have a market value of about $100 million or less, which is what three or four of the big gems they aim to find are worth. In this climate, the mines themselves could become trophies for billionaires.
Either way, the mass diamond market is being tested as gold continues to rally. Gold’s rise to all-time highs above $2,400 an ounce this year has captivated global markets, and the China, the largest producer and consumer of the precious metal, takes center stage. Chinese speculators fueled gold’s rally, according to analysis from the Financial Times, which showed Asian traders are beginning to overshadow their Western counterparts. Long gold positions held by futures traders on the Shanghai Futures Exchange (SHFE) rose to 295,233 contracts, equivalent to 295 tonnes of gold. This marks an increase of almost 50% since the end of September, before geopolitical tensions in the Middle East escalated.
Gold volumes on the SHFE rose more than five times from last year’s average to 1.3 million lots on the peak day of trading last week, a trading frenzy that analysts say explains gold’s record high in over $2,400 an ounce this month. “Chinese speculators have really grabbed gold by the throat,” commented John Reed, chief market strategist at the World Gold Council. Gold has rallied more than 40% since November 2022, supported by record buying from central banks of emerging markets seeking to diversify their holdings away from the US dollar.
The precious metal, which is often used as a hedge against inflation and currency devaluation, has strengthened further since the Israel-Gaza conflict erupted in October.
