Gold's sparkle may take sheen off diamonds

While diamantiares in Surat believe the emerging markets in India, China, Hong Kong and UAE are likely to offset demand from the US after S&P downgrade, there are concerns in the industry that the demand for diamond jewellery in India may go down due to a surge in the prices of polished diamonds since January 2011. This would discourage the buyers and spur consumers to favour gold due to its high returns.

Industry experts said polished diamond prices are all time high. In the last six months, the polished diamond prices have increased by 60-70 per cent compared to the same period previous year following the demand in the emerging markets such as India, China, Hong Kong, UAE, Russia, Latin America etc.

"Polished diamond prices have reached a peak. The price-value equation is so unfriendly to the consumers and they are now moving back to gold.

This is going to impact on the growth rates of diamond sales in India," chairman of Blue Star group Ashit Mehta said.

Mehta said, "I do not see any change in the prices of polished diamonds in the long term." India's jewellery market is pegged at $17 billion per annum, which includes gold, diamond, platinum and others. While gold jewellery is on the top, diamond jewellery sales are pegged at $5 billion per annum.

Prices for polished diamonds are gaining as the consumption in the Asian nations is expanding with the global rough diamond producers struggling to increase their capacity idled during the global financial crisis that began in 2008.

Recently, De Beers, the world's largest producer, said its sales in the first half of the year rose to a record 33 per cent at $3.5 billion compared to same period in the previous year with rough diamond prices advancing more than 49 per cent.

According to Kimberley Process (KP) statistics, the global rough diamond production rose nearly seven per cent in volume terms at 133.12 million carats and 39 per cent in value terms at $12 billion in 2010 compared to previous year.

"Global rough diamond production is still below its peak year of 2008. As the demand is increasing, the prices of both rough and polished diamonds have increased since 2010. Now, the polished prices are so high that it may spur consumers to buy plain gold jewellery," director of Sanghavi Diamonds Aagam Sanghavi said.

Titan Industries Limited (TIL), which owns Tanishq brand, said the company is concerned about the outlook for the coming quarters because of higher gold and diamond prices.

"Consumers don't find the price-value equation in diamonds anymore and they want to go back to gold," a senior executive with Tanishq said. "Gold is far closer to the psyche, ethos and culture of Indians than diamonds," he added.