Diamond News Archives

Clive Maund reminds us to keep our eyes on the prize when it comes to the recent pullback in the gold price and the ongoing test of patience demanded by silver.

So long as our long-term investment thesis remains sound (and barring a return to the gold standard, it will), shorter-term price pullbacks are to be viewed as gifts, opportunities to bring our average cost down and ultimately make more money.

Gold’s breach of nearby support last week freaked out some longs of a nervous disposition, but it did no technical damage of any significance, as we can see on our latest 3-year shown chart below on which we can observe that it is still above important supporting trendlines.

This chart shows that last week’s drop was just a “storm in a teacup”. Recall that the pattern that has been forming since mid-2016, for nearly two years now, is the Right Shoulder of its giant Head-and-Shoulders bottom that may be viewed on the 8-year chart in the last Gold Market update^[1].

Last week’s drop actually improved gold’s technical condition by flushing out more jittery Large Specs, as we can see on its latest COT chart. Whilst there is room for further improvement, positions are now at levels that are moderate enough to permit a rally, which will happen if the dollar reverses here or soon.

Turning to the 3-year chart for silver, we see that its technical condition is becoming extraordinarily tight, with fluctuations narrowing into a very tight range. This is a situation that must lead soon to a big move, and for a variety of reasons, that move is expected to be to the upside.

Recall that the pattern that has been forming since mid-2016,...

Following the global financial crisis of 2007-2009, diamonds were one of the fastest commodities to recover, up almost 150% from the low in early-2009 through mid-2011.¹ The crisis resulted in curtailed diamond production just as incremental demand for diamonds was escalating, primarily a result of the Chinese market adopting the tradition of giving diamond engagement rings in the midst of the financial liberation of the nation’s middle and upper-middle class.

However, since making an all-time high in Q2 2011 diamond prices have been in a prolonged downtrend as the run-up in prices led to growth in incremental supply through 2017, which was not met with commensurate demand. This was in part due to China suffering an economic slowdown in 2015, and over-leveraging in the diamond industry’s manufacturing segment which damaged industry sentiment and confidence while evoking unsettling price volatility.

Today, while the industry still deals with challenges ranging from shorter-term lender confidence in the Indian manufacturing segment to longer-term fundamental shifts in consumer preferences for material luxury goods, forecasted industry fundamentals point to an environment favoring higher diamond prices over a period of at least the next four years.

Diamond demand is correlated with global GDP growth and a current coordinated environment of global economic growth recently seen in Q4 2017 and Q1 2018 has translated to strong consumer sentiment and retail sales, especially in the industry’s most important markets. In Q1, jewelry store sales in the U.S. were up 11.9% year-over-year and in Mainland China “gold, silver and jewelry” retail sales were up 7.9%.² The U.S. represents the world’s largest end-market for diamond jewelry at almost 50%, Greater China, which includes Mainland China, Hong Kong, Macau and Taiwan, is second, approaching 20%.

Pending no major global economic disturbances disrupting...

Among the many contributors to 2008’s Great Recession were credit default swaps (CDSs), largely unregulated casino bets banks make with each other about nearly anything you can think of. Fully accounting for them is ridden with black-box difficulty, and ultimately, big banks essentially say “Don’t worry about them. They’re under control. Trust us.”

Perennial too-big-to-fail problem child Deutsche Bank is close to seeing its stock fall into the single digits, sounding alarm bells reminiscent of when Bear Stearns collapsed and was acquired for $2/share, and when Lehman imploded and went out-and-out bankrupt.

The connection? Deutsche’s CDS book runs to approximately $157T, yes trillion, or roughly twice the GDP of the entire world. The exact threat level this poses to the bank, the stock market, and the global financial community at large is not clear.

But if you found out that a community bank in Iowa had financial commitments valued at twice the GDP of the United States, would their constant assurances not to worry about that little detail put you any more at ease? How small would even an innocent mistake need to be, at that level of liability, to trigger a potentially lethal cascade of chain reactions?

We are not certain why the stock is plummeting, but we do suspect markets are getting a bit concerned about Deutsche’s humungo derivatives book^[1], and the global size of the derivatives markets, in general.

Derivatives, especially credit default swaps (CDS), are a legacy of the financial crisis which was ignored and never really dealt with.

Though, we believe it is a small probability, if the markets do run on DB’s derivatives book,^[2] even God won’t be able to save it.

Low probability, high...

Africa-focused Gem Diamonds' (LON:GEMD) has recovered a 115-carat diamond from the Letšeng mine in Lesotho.

The top white colour Type IIa gem was the ninth diamond of over 100 carats the company has found so far this year, exceeding the total number of precious stones over 100 carats dug up in 2017. Those recoveries include a massive 910-carat rock found in januaryu, the world's fifth biggest gem-quality diamond ever found.

Since acquiring Letšeng in 2006, Gem Diamonds has found now five of the 20 largest white gem quality diamonds ever recovered, which makes the mine the world’s highest dollar per carat kimberlite diamond operation.

At an average elevation of 3,100 metres (10,000 feet) above sea level, Letšeng is also one of the world’s highest diamond mines.

The biggest diamond ever found was the 3,106-carat Cullinan, dug near Pretoria, South Africa, in 1905. It was later cut into several stones, including the First Star of Africa and the Second Star of Africa, which are part of Britain's Crown Jewels held in the Tower of London. Lucara’s 1,109-carat Lesedi La Rona was the second-biggest in record, while the 995-carat Excelsior and 969-carat Star of Sierra Leone were the third- and fourth-largest.

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