Diamonds are a jeweller's best friend

DUBAI // Diamond sales at Rosy Blue, a global company that cuts, polishes and manufactures jewellery, were hard hit last year but are gaining momentum as consumers eye the sparkling stones as an alternative to increasingly costly gold. Sanjay Dalmia, the chief executive of Rosy Blue's regional office for the MENA region and Commonwealth of Independent States, said sales last year were down about 20 per cent. The decline, while disappointing, was an improvement from the 40 per cent sales drop in the first quarter as demand for diamonds was driven up by the rising gold price, he said.

"This process of people moving from gold to diamonds started three or four years back," Mr Dalmia said. "The gold price back then was US$250 an ounce, and now it is $1,200 an ounce. The process of people moving from gold to diamonds happened in this period, but in 2009 the prices hit record highs and that impacted on the gold sales." Last year was difficult for retailers the world over, but particularly for those selling expensive luxury items, such as jewellery. Pieces made of gold were particularly hard to sell as consumers tightened their budgets and the price of the precious metal reached record levels above $1,200 an ounce. Consumption of all gold was down 38 per cent in the third quarter of last year, the most recent statistics available, compared with the same period last year, the World Gold Council says.

Mr Dalmia said demand for jewellery was shifting towards diamonds as the global price of the gem fell between 15 per cent and 35 per cent last year. Even gold jewellers in India, traditionally the largest market for the precious metal, have been turning to diamonds to help spur gold sales. Laurent-Patrick Gally, a retail analyst at Shuaa Capital in Dubai, said he expected this trend to continue this year.

"If gold prices continue to stay at elevated levels or keep on rising, you will have a substitution effect continuing," he said. However, the average amount spent on diamonds had dropped, said Vincent Braganza, the general manager of Rosy Blue. In 2007 and 2008, the average client would spend between Dh2,500 (US$680.60) and Dh3,000, he said. Now, that amount has gone down to between Dh1,500 and Dh2,000. One reason could be that gold buyers typically have smaller budgets and are now applying this trend to diamond purchases.

"People are buying, but they are buying less costly jewellery," Mr Braganza said. Another factor contributing to the shift towards diamonds was that retailers made bigger profit margins on jewellery that included a gem, rather than just gold alone, he said. Jewellery with diamonds has more of a design element, while gold necklaces and bracelets are often bought and sold as an investment or a commodity.

The global price of rough diamonds has increased 5 per cent to 8 per cent in the past month, said Mr Dalmia. The price is expected to rise further as diamond sellers run out of stocks, said Mr Braganza. He hopes this will give a boost to Rosy Blue's wholesale diamond sales. "The suppliers of those diamonds have started running out of stock, and at the same time the retailers have started running out of finished jewellery," he said.

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