The most important business news coming out of Canada currently is the depreciating value of the Canadian dollar. The United States Fed decided that U.S. consumption needs to be rained in. Excess consumer spending in the United States is causing inflation, and the cure for inflation is raising interest rates.
Increasing interest rates in the United States encourage International investors to move their money to U.S. funds. The conversion of international money into U.S. dollars causes the dollar to rise against world currencies.
Canada has already raised interest rates, and our economy has slowed down. Currently, the Canadian dollar is trading at about 1.38 compared to its U.S. counterpart. A weaker Canadian dollar means that imported goods such as diamonds cost more. RBC believes that there is a good chance that the Bank of Canada will not need to raise interest rates again this year as economic conditions are reacting as expected to previous interest rate hikes.
If the U.S. Fed chairman continues to increase U.S. interest rates, the U.S. dollar will become even stronger and Canadian imports even more expensive. A cautionary note: economic predictions are really fluid, and U.S. interest rates may not rise as expected if their economy slows due to the developing story of U.S. Bank closures.
Last month, I stated that the diamond industry was looking to the Hong Kong jewelry show to predict the health of the industry. Many exhibitors left the show disappointed: the show was busy, but sales were limited. Buyers from China could not wrap their heads around the current diamond prices, and diamond sellers were not desperate enough to discount. This year's Hong Kong show is not an encouraging sign for a quick recovery.
Eden Golan is reporting a decline in consumer demand for diamonds. Loose diamond sales declined 12.5 percent in the first two months of 2023 compared to the same period in 2022. There is good demand for diamonds below five hundred dollars and higher-priced diamonds over fifty thousand dollars. Eden goes on to say that looking at the whole of 2022, branded diamond sales were slashed in half by the number of items sold, and total value was down by 32.3 percent. The trend continued in January, with General unit sales declining 41.7 percent year over year.
It is obvious from these figures that the Middle Market -- the bread and butter of the industry -- has simply dried up. There is still some good news: the overall price of polished diamonds seems to have stopped sliding and levelled off. Rough prices are stable except for very small rough.
De Beers raise the price of rough that produces the smallest melee by 30 percent during the last few months. These increases could be the result of discussions concerning the tightening of Russian sanctions. De Beer's rough Revenue fell 28 percent year on year during the first two sales of 2023.
In more salacious news, the HRD laboratory in Antwerp is being sued by a former partner, who alleges that diamonds with a previous rating by the U.S. competitor GIA were given one to two upgrades in colour. An internal audit also found significant differences in grades at HRD Mumbai as opposed to their other Laboratories. Last month, an expose on CBC television found that some Canadian retailers using diamond reports from Laboratories other than the GIA were misrepresenting grades and value.
I have been critical of Gia grading inconsistencies, so I can only imagine the degree of discrepancies in these other diamond reports. No business can afford to gamble with their reputation if they wish to remain respected and responsible members of the jewelry community.
Mel Moss
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