There’s almost always talk of a supposed “diamond bubble” within the industry and discussion on when the inevitable “pop” is going to be. However, we haven’t seen any such collapse, or concrete evidence of any bubbles, with the rate of price increases remaining relatively stable for decades. Impulsive investors might think they see a bubble on the horizon, but the actual diamond analytics tell a different story.
Why Investors Think There May Be a Diamond Bubble
There’s no contesting that diamonds are up this year. They’re up almost every year, but they’ve done exceedingly well since January 2020. US jewelry sales, in general, have gone way up, with the latest diamond analytics showing $32 billion in sales over the first five months of 2021.
This momentum seems to have slowed, with overall jewelry sales dropping very slightly in May. This is primarily due to consumers choosing less expensive jewelry, which has affected diamond jewelry sales. These prices took a more abrupt drop, which is one of the main indicators that investors are taking as proof of a bubble.
The classic signs of a bubble are a sudden rise in price, followed by a sudden decrease. Investors are quick to identify supposed bubbles in all kinds of markets, but is that what’s really happening with diamonds today?
Diamond Analytics Show No Reason to Fear Diamond Bubble
We’ve seen some record highs in terms of demand for diamond jewelry over the past year, and that demand has led to higher prices for diamonds. This is simple supply and demand, with retailers paying more to restock their shops. The fear is that if prices were to begin to fall, retailers would begin trying to recoup costs by dropping prices even further, and a feedback loop would crash diamond prices.
However, very basic diamond analytics show that this isn’t any cause for concern. What investors are calling a potential bubble is simply the ebb and flow of market forces that occur with essentially any asset, barring government price controls. With retailers stocked up, we might see lower demand, leading to reduced manufacturing and then a smaller supply. However, the smaller supply drives prices back up.