Diamonds Sparkle as Gold Dulls
That diamond engagement ring may soon cost you more--unless you forget the diamond part.
De Beers, which controls 70% of the world diamond market, could sell a record $700 million worth of gems this week, analysts said, as demand returns to levels last seen in 1997.
Such a sale, one of 10 held every year, would almost double the results from a year earlier, when De Beers raised $365 million and annual sales were at an 11-year low--a victim of Asia’s economic crisis.
This week’s sale is likely to be the biggest of the year as diamond cutters buy supplies to meet peak demand during the fourth-quarter holidays in the U.S. and Europe.
And diamond prices have been rising, reflecting resurgent demand. Diamonds sold outside De Beers’ marketing arm have risen about 20% over the last year from what were the lowest levels in a decade, experts say.
“There is strong demand in the U.S., and Asia has turned around,” said Allan Cooke, an analyst at Rice Rinaldi Securities in Johannesburg.
Gold, meanwhile, is looking like a gilded basket case: Near-term futures in New York skidded $1.50 to close at $253.50 an ounce on Tuesday, a 20-year low.
That eclipsed the previous closing low of $253.90 set July 19.
Gold had enjoyed a modest rally to about $262 an ounce in recent weeks, but traders say prices are sinking again on speculation that next month’s gold auction by the Bank of England could encourage other central banks to follow suit and sell more of their reserves.
Britain will offer 25 metric tons of gold at auction Sept. 21, the second in a series of sales aimed at reducing the country’s gold reserves.
Several other nations also have either been selling gold reserves over the last year or have discussed doing so.
In the diamond market, however, growing demand has collided with tighter supplies. African civil wars have dried up supply from both government operations and rebel-held mines that smuggle their gems and sell them outside De Beers’ organization.
Diamond sales worldwide could also be boosted by De Beers’ “millennium” diamond-marketing program, which is encouraging consumers to buy jewels to celebrate the year 2000.
Even as sales boom, De Beers could sell even more gems this week if it chooses, said Hennie Vermeulen, an analyst at Investec securities in Johannesburg, who said he believes there is enough demand for De Beers to sell $850 million worth of diamonds.
Last year De Beers restricted supply to the market to protect prices as Asian demand fell. Analysts say it has relaxed this policy, but De Beers says it is still in force.
