By Saul Singer
The diamond market has opened 2012 sluggishly with both rough and polished prices easing. Although the retail sector experienced a steady Holiday Season, the sentiment in the global diamond trading market is being influenced by the volatile macro-economic state of affairs. Jitteriness has thus crept back into the diamond market with traders becoming more eager to diminish inventory levels.
The major rough diamond suppliers reduced their prices in January in line with market expectations sending a clear message of cautiousness throughout the diamond pipeline. Now the markets are looking to China as it enters into the crucial Chinese New Year as a source of positive momentum leading into Valentines Day.
Despite the immediate-term jitteriness in the market, the underlying fundamentals remains very strong with demand expected to continue to outstrip supply into the medium term. This mis-match between the short-term negative sentiment and longer term positive outlook makes the diamond market ripe for speculators looking to make a play on diamond price movements. Whilst speculative trading does not cause much concern unto itself and is part and parcel of the global diamond trading markets, it is when the speculative activity extends beyond the scope of traditional diamond trading markets that it starts to become concerning.
As diamonds become more attractive to the broader alternative investment market the propensity for unscrupulous speculative activity with the potential to skew prices becomes more prominent. Although the levels of speculative buying from sources outside the traditional diamond is still within healthy levels, we do view this as a real risk as diamonds become more accepted by the broader financial community and included in more and more investment mandates. The key to managing this risk is understanding the complex dynamics of diamond trading markets by actually being active on the market itself and keeping ones finger on the pulse.
We expect investment diamond prices to remain stable during February, with dealers to take direction from the demand and trading activity at the upcoming International Jewellery Show being held in Hong Kong later this month. Our overall outlook for 2012 remains positive being spurred by steady demand from emerging markets and demand outstripping supply.
Saul Singer is a partner at Fusion Alternatives Investment Management, an innovative investment house and the leading alternative investment asset manager specialising in investment diamonds. Fusion Alternatives does not hold any diamond inventory and aims to give expert and independent insight into the global diamond market. Visit ww.fusionalternatives.com for further information.
