The Rush for the Holy Grail: Cash Flow

The Rush for the Holy Grail Cash Flow - featured Edahn Golan

Diamond wholesalers, just as any other business owners in the COVID-19 era, need to jump start their business activity, and those that could did. The result was a mid-single digit drop in wholesale diamond prices in May.

Polished Diamond Prices Tumble Seeking Cash Flow

The desire to generate cash flow, accompanied by pressures to do so quickly, led traders to decrease prices, as the following diamond price chart shows. Month over month, polished diamond prices declined an estimated 3.3% in May. This is the deepest wholesale diamond price drop since mid-2015.

According to our polished diamond price list, month-over-month declines took place across the board. Prices declined in every single key category, with one-third carats once again suffering the deepest declines.

Wholesale diamond price chart - May 2020

The sharp decline in prices, shouldn’t come as a surprise. Many traders in the diamond market are aching to generate cash flow. Buyers in the jewelry industry can smell it, and are succeeding in squeezing out much better prices than before.

But is this sustainable? As soon as traders start generating sales, prices will realign, and jump back to their prior levels. In May, the volume of sales already improved, helped no doubt by the lower prices.

For now, temporarily, prices headed south, as the following price chart shows.

Wholesale polished diamond chart by size - May 2020

Mother’s Day Provides Retail with Some Relief

By mid-March, independent jewelry retailers reduced activity by more than 50%. That was just the opening shot. For the next 45 days, until late April, their sales level was just a small fraction of what they were able to generate in the same period in 2019.

A certain resurrection in sales took place during the week leading up to Mother’s Day. And while sales did not fall back afterwards to their March-April lows, they remained at less than half their levels in 2019. So some cash flow was generated, hopefully enough to keep these retailers afloat.

Lab Grown

Reflecting activity at specialty retailers, sales of lab-grown set jewelry and loose lab-grown diamonds improved in May compared to April. The sharpest rise in sales was for rings set with LGDs, a popular item for Mother’s Day.

Overall, it was fashion LGD jewelry that consumers were interested in. Weddings, proposals, or anniversaries did not seem to inspire demand for LGDs.

The Bottom Line

The need for cash flow dominated the market in May. The midstream of the diamond industry was clearly in a bind, but resourceful as ever, it did what was needed to get through this rough period.

The challenges are clearly still there, and so are the opportunities. Diamond firms around the world are recalculating their path forward. Several took bold and unusual moves and did very well. Many companies are ready to launch new initiatives, aimed at improving their standing. Indeed, interesting times are ahead of us.

Edahn Golan
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Edahn Golan has 20 years of experience as a diamond industry analyst. He has a unique ability to provide a global view with context to the exclusive granular data he shares. The New York Times, Wall Street Journal, Business Insider, and other leading publications quote him regularly.

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