Many might remember 2010 as the year global commodity prices continued to surge. The Dow Jones-UBS Commodity IndexSM ended the year up 36 percent. Strong gains were experienced across all major commodity markets with the industrial metals market leading the charge. Investment Diamonds gained 20 percent in 2010, however on a risk-adjusted basis, Investment Diamonds outperformed even the surging commodities market.
2010 was truly a tale of two halves for the Investment Diamond market. During the first half Investment Diamond prices continued their recovery from the slump experienced in the wake of the global financial crisis the previous year rising 17 percent for the half. The second half saw Investment Diamond prices stabilizing yet remaining flat until mid-November when they started to respond to continued rises in rough diamond prices and solid pull-through from major diamond consuming markets in the lead-up to the Holiday Season.
The price movements of Investment Diamonds compared to other asset classes during 2010 also highlighted one of its most marketable underlying characteristic as an alternative investment asset class – its low volatility. This is especially the case on the downside, with Investment Diamonds exhibiting relatively inelastic downward price pressure. From a macro-industry perspective, the cause of this lies in the production stabilization mechanism inherent in the diamond pipeline. With some eighty percent of global diamond production being controlled by four companies there exists a natural alignment of diamonds flowing into the pipeline with demand from major consuming markets from the other end of the pipeline.
The other story emerging from the Investment Diamond market was the continued surge in prices for Special and Unique Diamonds including very large and fancy coloured diamonds. This niche segment of the market has essentially sky-rocketed over the last three years with record after record being broken in both the international auction and private client markets, culminating in the record-breaking sale of a 24.78 Fancy Intense Pink diamond bought by Laurence Graff for $45.6 million USD at the Sotheby’s Magnificent Jewels Sale in Geneva in November.
Notwithstanding some of the prevalent risks inherent in the diamond pipeline, Investment Diamond market fundamentals remain robust, allowing us to maintain our overall ‘positive’ outlook for investment diamonds both in the short and medium terms and expect prices to continue to trend upwards in 2011.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.