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Buy Now Or Wait 3 Months For Prices To Decline?


pfq1982
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Hi all,

 

I'm in the market for a stone for an engagement ring... probably looking in the $10k-20k range; focused more on brilliance than size. Obviously I figure demand for engagement stones is fixed, but number of people looking to buy in this range must surely be declining. (more people dropping from my range than dropping into it) I'm in no rush. This might be a sensitive question, but would people in the biz advise me to wait a while? I know Q4 is seasonally good for jewellers so maybe they last a while, but the non-engagement part of the biz has to be hurting, which to m mind should carry over into engagement prices eventually, either by BN setting mkt prices lower or local competitive pressures... And NY Times just ran a great article talking about how supply auction prices are down a lot, which should be rolling through inventory over next 3 months? (not sure how fast inventory turns...) Any advice from dealers? I'm an upfront buyer, so they wouldn't have to finance their inventory. Seems to me I should have decent negotiating leverage. Any thoughts about best way to negotiate px? From Harry Winston SEC filings, I see near 50% gross margins which means 100% mark-ups. I'm not willing to pay that... Seems to me I can find somebody desparate enough to move inventory and sell to me for a px closer to cost?

 

Thanks a ton in advance,

Patrick

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If you are in no rush, why hurry?

 

In the event of an economic catastrophe, assuming you still want to spend several $1000 on a diamond, you'll buy the Cullinan. In the middling scenario prices won't go down, but won't go up either. In the best case, modest price inflation will return, but in the 1-2 ct colourless range that has not been huge in the past, so why should it be different.

 

Wait and see; in the meantime you can look around, learn about diamonds, get to know different jewellers, deciding who you would like to work with, and - if the right stone shows up at a bargain price - buy it.

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If you are in no rush, why hurry?

 

In the event of an economic catastrophe, assuming you still want to spend several $1000 on a diamond, you'll buy the Cullinan. In the middling scenario prices won't go down, but won't go up either. In the best case, modest price inflation will return, but in the 1-2 ct colourless range that has not been huge in the past, so why should it be different.

 

Wait and see; in the meantime you can look around, learn about diamonds, get to know different jewellers, deciding who you would like to work with, and - if the right stone shows up at a bargain price - buy it.

 

What's the/a Cullinan?

 

Well there's no rush, but I would like to purchase within 6 months

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It’s correct that the mid-range and high end jewelry market is suffering at the moment and we’ll be seeing some stores close up shop as well as a variety of claims of fantastic bargains. (‘Trinkets’ of the sort that tourists are buying for souvenirs or that teenagers are buying are still doing surprisingly well but that’s another story). The heart of your question is whether these claims are likely to be correct and, more importantly, whether any of the resultant bargains are for what you’re looking for. The right price on the wrong thing is no bargain after all.

 

Unfortunately, I don’t see either of those as very likely. For starters, the big thing that’s killing the jewelers is that the gross margins on the sort of goods you’re looking at has already been beaten down to an unsustainable level. 100% markups are ancient history except on the above mentioned trinkets , even for stores like Tiffany and HW. The highly aggressive folks who are actually getting the sales are often looking at single digit markups. It’s not all that unusual for the dealers cut to be less than for the sales taxes and the credit card fee.

 

The other thing you’re missing is that the majority of the expensive diamonds aren’t actually owned by the jeweler. They are there on a consignment system known as memorandum from their suppliers. If and when the dealer goes out of business, they don’t have the opportunity to sell for below cost to recover part of their investment because they don’t have any investment at all (in that item). They simply return it to the vendor who then tries to sell it somewhere else. Perhaps through one of those above mentioned aggressive dealers. Most of the internet dealers and aggressive B&M's are using the same sort of consignment arrangement except they don't even take possession of the stone in the first place. They're not really in the business of diamonds at all, they're in the business of advertising.

 

Although there is a fashion component, diamonds aren’t particularly perishable and it costs the real owner very little to just hold the inventory wait. This causes a problem for the mines and cutters, because people aren’t buying new stock, but the downward pressure on the prices isn’t the same dynamic that you’re expecting. The mines close, the cutters find new employment etc. There are likely to be a few bargains as this all shakes out but I am not expecting a blanket retail price reduction in $10k diamonds, even though the New York Times is predicting it.

 

Lastly, there's a foreign exchange issue. Diamonds have a lot of components that go into the price including mining, cutting, grading, taxes and other costs but most of this is done outside of the US. A weak dollar drives up the price for Americans and a strong dollar drives them down. There are a few people out there who take a stab at predicting this and there's certainly a ton of money to be made by anyone who's any good at it but there are remarkably few 'experts' who have become zillionaires by correctly predicting this and then following their own advice.

 

My advice: Buy it if you like it and can afford it and to time your purchase based on when you and your beloved want to get engaged, not as a matter of trying to predict the vagaries of the diamond business.

 

Neil

Edited by denverappraiser
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