Influx of recycled diamonds could depress prices

A respected diamond expert says that an influx of "recycled" diamonds entering the market could depress prices of the precious stones and hurt diamond miners.

Chaim Even-Zohar, a consultant with Israel's Tacy Ltd., told an audience at last week's PDAC conference in Toronto that a growing number of people, especially in the United States, are pawning their diamond rings and gold jewellery as a way of paying off debts and returning to financial solvency during a time of job loss and recession.

Reuters reports the trend is "sending ripples through the gem industry at a time when high-quality rough diamonds have become more difficult to find, and more expensive to mine":

To be sure, analysts were already expected a short-term dip in prices as a weak global economy cuts disposable income in Europe and North America. But the forecast by Even-Zohar, a respected expert, seemed to confirm a nagging fear that recycling could hurt explorers and miners for years.

The numbers already point in that direction, he says. The rough diamond market, before the stones are polished and cut, was worth about $15.2 billion in 2011, and could drop some 10 to 13 percent in 2012. At the same time, Even-Zohar expects $1 billion worth of recycled diamonds to be put back into the market this year.

Polished diamond prices, on the other hand, rose in 2011 spurred by strong buying in the first half of the year, but global economic uncertainties and tight liquidity in the cutting centers caused prices to soften in the latter half. While confidence has improved since January, following a period of relative price stability and a satisfactory U.S. holiday season, concerns remain whether current price levels are sustainable.