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Meteoric Rise In The Rapaport List ...thoughts?


diamondsbylauren
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I think this trend will continue. High carat, high rarity gems for the most part have traded openly on the markets and price dictated by supply/demand. However the smaller common cheaper goods have been tightly controlled in supply for many years and so that's why they're not really appreciating in relation to the larger/quality gems if you ask me.

 

Look at what Debeer's has historically promoted. 3-stone rings.... right hand rings.... journey jewelry. There's a common theme here. They're promoting the consumption of <1ct commercial goods. I think these promotions while important for the industry have failed to keep people buying smaller goods, demand is not there like is needed. When was the last time you saw Debeer's tell people to buy a flawless diamond? Or a fancy yellow? Or a 5 carat diamond? Now Debeer's is transitioning into retail and I think they've also given up the idea of trying to control supply and boost demand of these goods.

 

In fact, I wouldn't be surprised if smaller diamonds/melees of commercial grade goods even start dropping in price due to a weak consumer if the overal economy doesn't improve by years end.

 

The TRUE holders of value when it comes to diamonds like the fancy color, large size and very clean goods will appreciate much more if you ask me.

 

And I agree with Barry, the dollar also plays a big role on pricing diamonds overall, and it's true Asians and Middle Easterner's usually prefer these more rare gems which is a function of our depreciating dollar. But as for the disproportionate increases for larger/rare stones, I don't think it's really a dollar issue, I think it's a suppy/demand issue that is slowly correcting itself after so many years of manipulation.

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In fact, I wouldn't be surprised if smaller diamonds/melees of commercial grade goods even start dropping in price

I don't think DeBeers advertising could make people value smaller diamonds as much as larger ones.

I believe that the higher list prices are a reaction to the way the maket has moved by itself.

Just a few years ago, dicounts off the list were common.

Recently, delaers have had to pay above list for certain "Super Stones"

 

For sure , it will have an affect on those sites selling from Database list.

 

 

Yosef, I was just with a a large dealer in Melee.

Prices are way up there too -esepcially in collection colors/fine makes

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Commodities prices across the board have skyrocketed in the last 18 months. This is fueled by the combination of a weak dollar, high inflation, and weak consumption. Once these three conditions subside (and they will), the prices will come back down. In economics, we talk about a phenomenon called "rockets and feathers" pricing. This phrase describes the fact that when a commodity rises, prices for finished goods rapidly adjust. On the way down, however, prices equilibrate much slower. I'd expect the air to come out of the commodities market sometime in 2009.

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There was a lengthy discussion about this on Polygon..

 

The gist seems to be that a lot of non tradespeople have access to the list.. And because of that the margins have been cut thinner and thinner.. So the "rap" price was raised dramatically while the actual price has been reasonably stable to give the buyers/sellers more room to discount off of rap..

 

As usual, rap means nothing more than Martin is flexing his control over the diamond industry..

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It’s certainly correct that the dollar is dropping when compared to most other currencies, that diamonds are mined and cut in places where people are paid with other currencies and that that this makes for a general inflation when compared to US made goods and services, I don’t think this entirely accounts for the difference. After all, I1/K’s are produced overseas as well.

 

The price difference between D/VVS and K/I1 seems to be increasing rather steeply and I can only see a few explanations for it.

 

1) Poor reporting. Big D/IF’s didn’t actually go up 25% last week, what changed was the Rap sheet. To a large degree, I think this is correct. Most wholesale trades are done at a ‘discount’ from Rap but the discount that applies varies dramatically with the stone. Getting 35% back on L color’s and unpopular cuts is pretty easy but for big, clear, white ideals you have to pay full list or even more. This modifier at the end is what makes Rap a serious trap for consumers and is why it’s increasingly used as sales material for the lower grades. The big increases are just a catching up on the reporting of changes that have been going on for years.

 

2) Speculators. I don’t think consumptive demand for big VVS’s hasn’t increased compared to I1’s and I2’s. It just doesn’t make sense. The vast majority of worldwide diamond consumers are middle class to upper middle class folks who have a few thousand to a perhaps a few tens of thousands of dollars to spend. The marketplace for stones in the 6 and 7 digit ranges is completely different and it has an awful lot to do with how people perceive investment. They’re diversifying a portfolio. It’s easy to see a pattern of diamonds rising faster than inflation and it’s easy to conclude that this is a place to store some wealth. Perhaps it is, but this undermines the whole stability that is what’s being observed. Personally, I think this is the bulk of what we’re seeing. Those big diamonds aren’t going onto the fingers of people who are wearing them proudly, they are going into the vaults of speculators, both within and outside of the trade who are betting that the trend will continue.

 

3) Increased production at the very low end. Mines produce whatever God put there, but the cutters are a different story. They are working at whatever sells best for them. The majority of diamonds mined are not of gem quality and end up in industrial purposes like machine tools and drill bits. Each gem diamond requires the time and personal involvement of a cutter and it’s not worth their effort to cut the ones that look like sugar cubes or dirt clods while their usefulness as a drill bit are unchanged. The result is that the very first thing done with a diamond after it’s mined it to sort it onto a different pathway for processing. For some stones it’s obvious either way but new treatments, automation and increasing consumer acceptance of lower qualities is moving this line towards more being treated as gems. I see stones now that NEVER would have been cut into gems as recently as 15 years ago. The ‘labs’ and Internet are making it worse. I2’s and I3’s are now ‘certified’ as SI2’s and sold online for what customers see as bargain prices. It’s driving down the prices of ‘real’ SI2’s when compared to VS type good that always have been considered gems.

 

4) Increased demand at the high end. Top quality color/clarity combinations have always been more popular in some countries than others. Asia and the middle east, in particular, have been the traditional places where these stones get sold. As I’m sure everyone reading this knows, the economy in the US is suffering at the moment and things in Dubai and China are looking up. The US is currently the place to sell SI1/I’s, Dubai is the place to be selling VVS1/F’s and Hong Kong is the place to be selling IF/D’s. It’s a very global marketplace.

 

or not.

 

As I routinely tell clients, if I could really predict how prices would change in the future, I would be a wealthy wealthy man. Unfortunately, that's not a job for an appraiser or a gemologist , it's a job for a psychic.

 

Neil

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So what does all of this mean for the Average Joe buying a diamond at a B&M store? Can I expect to pay more for a diamond in the coming weeks compared to last month?

 

Probably.

 

Consumer prices, at least for aggressive consumers have actually been dropping in the last few years but this has been because of declining dealer margins and shifting marketplaces (towards Internet purchases). Obviously this trend of rising wholesale prices and dropping retail margins can't continue indefinitely because the lines will cross and the dealers will simply refuse to participate. It's hard to identify where that crossing point is but I think it's close if not already crossed. Profitably selling $20k rocks to consumers who are reasonably aware of their alternatives is remarkably difficult for most jewelers to do.

 

Neil

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Did anyone notice the prices on the largest internet seller?

It would seem that they have responded to the increase.

 

 

That could actually be the largest impetus.

I don't believe that simply having a "Rap Sheet" makes a consumer any more powerful. They'd also need a dealer willing to sell below the sheet.

 

I agree Neil- if there's no margin at all, dealers will have to pull out.

In a sense, I believe that's happened to a large degree at the "Brick and Mortar" level.

There are a lot less retail "walk in" operations that are still carrying $20,000 diamonds in stock than there were 10 years ago.

 

 

Maybe this increase was meant to stop some online sellers offering the goods at an unsustainable low level.....

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Martin Rapaport, Editor of The Rapaport Report tonight issued the following statement regarding the significant diamond price increases listed as of May 23:

 

" The higher prices published in the May 23, 2008 Rapaport Price List do not reflect a sudden change in diamond prices, but rather adjustments made to reflect the level of premiums in the trading markets. We do not believe there is any reason for suppliers to raise prices based on these adjustments. We advise buyers that in our opinion they should not pay premiums over the latest Price List. Prices in the current market are at or below the Price List.

 

The trade is cautioned that current price levels reflect volatile external economic forces and may not be sustainable. There is also significant risk that prices for commercial quality diamonds may decline due to unfavorable conditions in the U.S. consumer market. At their current levels, diamond prices are subject to greater volatility and downside risk exposure.â€

 

"Question: Why does Rapaport increase prices on the one hand while issuing a caution about external economic forces and warning that diamond price levels may not be sustainable? Isn't that a contradiction?

 

Answer: The global economy is undergoing a period of extreme volatility. Oil prices have doubled. Rice is up 80%. The dollar has plummeted. Gold surged through $1,000/ounce and has recently corrected back down to $890. And then of course, there is the U.S. mortgage crisis. These are not normal times and they are impacting diamond prices. Rapaport does not set or control diamond prices. We report them.

 

At the same time we believe that it is responsible to present our opinion that higher prices are the result of external forces that could suddenly reverse direction. If gold prices can go up and down, the same can and probably will happen to diamond prices. We believe it is important to communicate the risk of volatility to the diamond trade. Furthermore, the higher diamond prices go the greater the risk that they may correct. Finally, we hope that our warning may cool down some of the speculation in the rough markets and cutting centers."

 

There you have it in a nutshell.

Edited by barry
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Yosef, I was just with a a large dealer in Melee.

Prices are way up there too -esepcially in collection colors/fine makes

 

Well I said commercial melees like I1-I3, low color could drop by year's end. These gems are not rare at all and demand is now waning due to a weakened consumer. I know the quality stuff is going up because I keep paying more :) The average Joe doesn't know anything about jewelry, they see a commercial for Zales or Debeers and go buy something similar for $199 "on sale" 70% off because they were told to by the sexy woman on the TV :) The demand for quality gems, large gems, is real demand, not manufactured by the diamond suppliers/retailers. Quality melees are going up, but so is supply. I don't have a hard time finding quality melees, infact they're easier to find now then before if you ask me. That's not the case for larger high quality diamond goods especially in 3+ct sizes which can be very hard to get. No one is selling their melees, supplies are building up. It will be interesting to see which way they go, high quality melees could definately keep going up. But I wouldn't want to be holding the bag on a bunch of I1-I3 junk going into 2009 which will probably have an even weaker consumer then 2008.

 

Just my 2c.

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Move to where?

 

Canada! How ironic I left there 5 years aggo because of a weak Canadian dollar, restrictive taxation, an anti-business sentiment and weaker consumers compared to the US who spend more on average on diamonds. Now it's completely opposite... Consumers there are stronger, their currency is stronger, they've removed all excise tax and have even dropped their GST taxes.

 

Maybe it's all my fault, you guys should kick me out I'm bad luck. :)

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Aside from 3 carat + well cut diamonds that are scarce and demand is high, there is no reason IMO for Rappaport to have come out with such exorbitant price increases. Indeed, Rappaport has done both consumers and tradespeople a grave injustice.

 

More thoughts here: http://www.diamondvues.com/2008/05/hey_im_...t_diamonds.html

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I think what we are seeing in the real world market, over the past week- is that the prices have not risen to the extent that the sheet did - with the notable exception of sites who's prices are directly related to the Rap sheet.

 

In trade terms, it would seem that Rap is attempting to create an environment more similar to that of a few years ago- where dealers would trade at discounts below the rap sheet.....

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Barry,

 

Check your spelling of the word Rapaport.

 

Neil

 

Yes, Teacher.

 

Shall I write it 500 times?

 

Red Delicious or Green Apple for Tomorrow, Sir?

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RE: Rapaport Price Increase.

 

One also needs to consider a possible conflict of interest as the Rapaport website has an upload service whereby manufacturers and dealers can upload and list their diamonds for sale.

 

Rapaport receives a commission on every sale.

Edited by barry
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  • 2 months later...

Two months later, oil has eased off a bit but keeps threatening, the US dollar is still weak and the world economy overall is in no better shape. Luxury goods in general seem to suffer from this; what's your insider view regarding diamond prices?

 

(I'm asking as a curious consumer - I buy jewellery and gemstones because I like them, not because I believe they will make me any money, ever)

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