Flush with Cash

RAPAPORT… Everyone expected a drop in demand following the September jewelry show. This was true for a few days; however, demand picked up quite dramatically for the first half of October.

Years ago, the Chinese government initiated an enforced holiday following National Day on October 1 in order to stimulate consumer spending. It has now become an institution known as “Golden Week.” This year’s holiday was indeed a golden week for Hong Kong.

Boom Time

The number of visitors from the Mainland grew by 30 percent compared to 2006, and they came flush with cash to spend, having made a killing in a booming stock market. A fair share of this spending was on jewelry, and some local retailers reported double-digit growth in sales, as well as a 10 percent increase in the average price range.

Business on the Mainland continues to be strong as the stock market continues its meteoric climb. Dealers report an especially strong demand for goods in the best qualities. There is a constant demand for DIF in stones of 1 carat and larger. Stones larger than 5 carats are in very high demand. Investors have made a lot of money in the stock market, and they are demanding the best that money can buy.

Hong Kong has also experienced the frenzy of equity markets. The local stock index has risen by more than 50 percent since August. Even though there are regular warnings that the gains cannot continue and stocks are overvalued, the Chinese government only added to the frenzied speculation when it announced that Mainland investors would soon be able to buy Hong Kong stocks.

Investors believe this new source of capital will drive the market even higher. So far, the Chinese government has only announced its intentions to allow Mainland investors in; nothing has been finalized.

Away from Fundamentals

Pure speculation is driving the markets, not only in Hong Kong but all over the world. Investment fundamentals no longer seem to apply as the market is driven by sentiment and what seems to be a never-ending source of new funds.

There has been a lot of press recently promoting diamonds as a good investment, and suggesting that China is destined to become the world’s largest diamond market in the foreseeable future. While all this hype is directed at consumers — implying that the growing demand will result in prices going up — diamond dealers are not buying into this message. They are wary that the demand is artificial and speculative, since there is a visible shortage of regular merchandise. While it is understandable that the top-quality stones, especially in large sizes, are always in short supply, recently the market is finding that commercial-quality stones in better clarities in medium colors are also becoming more difficult to find.

There is a strong demand for goods in H to I colors in better clarities, which emanates not only from China but India as well.

Search for Perfection

The Gemological Institute of America (GIA) has recently started to issue dossiers for stones from 1- to 2-carat sizes, which come with a laser inscription as well. If properly received by the trade and wisely used, the dossiers could be a great selling tool. But that isn’t what is happening. The problem is that the additional information that has been crammed into the dossier is giving consumers more reasons to fault perfectly salable stones.

Everyone wants to buy the best, even if they cannot afford it, and a certificate that accentuates “imperfections” tends to put a buyer off. Many stones are rejected because the inclusions plotted on a certificate are so numerous. In some cases, the imperfections are hardly visible or even invisible with a 10X loupe, but when they are clearly shown in the certificate, buyers are not comfortable buying the stone.

Another factor that is subjective is the cut. A cut considered excellent by the laboratory might not really suit the taste of certain markets. When ideal cuts were first introduced into Hong Kong, for example, they were not popular because they were perceived as too small looking. Spready stones also faced up whiter than ideal cuts. This is especially true in stones I color and lower.

While a spready stone might lose out slightly in brilliance, the body color is diffused through the bottom facets and is not trapped. An extreme example of color trapping is how some fancy colored stones are now “modified” in order to show a deeper color from the face than the real body color of the rough.

The trade would like some flexibility in catering to the tastes of different markets. It is believed that would ease the flow of goods and in turn increase the amount of goods being sold.

The Marketplace

• Large stones in high colors are difficult to find and prices are very firm.
• 1.50 carats are beginning to be more in demand, especially in pairs and high colors. Buyers prefer better colors, D to F, even if clarities are VS or SI. Both rounds and fancies in hearts and pear shapes are popular.
•1-carat sizes in H-I/VVS are always in demand and high Js are also acceptable. D-E/VS and SIs are also moving well.
• There is very good dossier demand for 1/3, with 40 pointers good and 50 pointers and larger very good.
• Demand for Indian setting sizes is stable and should get better as more goods for Christmas orders are finished in November.