Are diamond prices still rising? Are they falling, or are they standing still? And what will happen to diamond prices in the coming months? For the first time since 2009, a crystal ball is required to estimate what is likely to be the direction that prices will take in the coming months. After a period of sharply rising prices, a degree of volatility has returned to the sector.

Diamond prices have been on a tear for more than two years. And in the first half of this year, depending on the type and quality of diamonds, there were price rises of as much as 50 percent. De Beers, in its financial report for the first six months of this year, which it released in mid-July, noted rises of 35 percent.

However, news reports in the past month have pointed to slowing prices and even declines of around 10 percent, according to Indian diamantaires. On the other hand, import and export figures over the past month from several diamond centers, along with sales by major diamond producers, suggest that demand is still strong and that is giving strength to price rises.

Reports in India this week quoted industry figures in the world's largest diamond manufacturing center as saying that rough prices had not only slowed down, but had fallen by 10 percent over the past month. That was due to rising interest rates in the country that was making borrowing more expensive and a refusal on the part of manufacturers to pay the ever-rising premiums being demanded.

The market was taken aback last month when prices at BHP Billiton's tender reportedly dropped by around 15-20 percent. As analysts and industry figures pointed out, however, BHP Billiton's share of global rough diamond supply is relatively small. Some said that the decline was also from overly-high prices. BHP Billiton's complex tender system is also different to standard tenders where the top price wins the goods. Its impact on diamond prices is therefore relatively small, but nonetheless provides a degree of evidence as to the state of the market.

BMO Capital Markets analyst Edward Sterck believes the price declines are partly due to the time of year – meaning the slow summer vacation period, the religious holidays coming up in certain diamond centers, and a degree of price consolidation following a lengthy period of overheating.

RBC Capital Markets analyst Des Kilalea also believes that there has been some exaggeration regarding diamond prices which soared to levels that are higher than those seen in the peak period before the 2008 financial crisis. In addition to overheated prices, there are the worries brought about by the Greek debt crisis, fears concerning the health of other major European economies such as Italy and Spain, anemic economic growth in the United States, and fears of a double-dip recession.
However, neither of the analysts believe that diamond prices will fall substantially. Sterck forecasts further declines of 5-7 percent. Meanwhile, Kilalea believes price rises have been due to restocking of the diamond pipeline following the financial crisis, a degree of speculation and strong demand from China and India. With the restocking now largely complete, and declining levels of speculation, markets will largely depend on actual diamond jewellery demand to give prices a boost, he believes. And with global economic growth still uncertain, he does not expect to see sharp rises.

And this week Varda Shine, the managing director of De Beers' marketing and sales unit, the Diamond Trading Company (DTC), appeared to confirm in an interview in Diamond Intelligence Briefs that diamond prices need time for a breather after their sharp price increases. The mining giant would leave prices unchanged through to the end of the year, she said.

She urged diamantaires not to be spooked by a technical price correction and not to talk the diamond business into a downward spiral. She pointed out that this time of year traditionally sees slower sales due to the summer vacation. She said that at a time of declining faith in stock markets, diamonds are increasingly being seen as a sound investment, and that would provide a boost to prices.

Rising prices or falling prices? Given the strong demand from India and China and reports from the DTC that the U.S. market is growing strongly, it would appear that the decline is only temporary and that further rises could be on their way.