What Mathematical Models Can Tell Us about Future Lab-Grown Diamond Prices

THE RECENT SPECTACULAR decline in lab-grown diamond prices is creating significant turbulence, as average unit bridal retails have now contracted in response, causing nearly every retailer to ask the same question: How low will lab prices go?
Consider that what’s happened thus far is a function of three fundamental economic principles:

Supply and demand: The price for any product will be found at the equilibrium point.

Moore’s Law: The cost of producing products using evolving technologies will decline over time, with a consequent increase in value offered.

Disintermediation: As supply chains become more efficient, the elimination of intermediaries will lead to lower prices.

The result is clear: Prices have fallen. There is, of course, a point at which growers will no longer willingly sell rough, but we’re not there yet. And remember, unlike CZs, which can be cut using entirely automated processes, diamonds require a far more intricate cutting process, creating an ultimate floor to the price of polished goods. Fortunately, just as the three principles listed above are applying downward pressure on price, evolving trends may serve to support current, and perhaps even higher, price levels.

Domestically, consider that Signet alone will metabolize enormous quantities of lab-grown diamonds as they attempt to maximize their share of the category. Costco hasn’t even gotten in the game yet, in part because of inadequate levels of supply. And companies like JC Penney are now contemplating a shift to lab-only strategies, leading the rest of the majors towards CVD. On the independent side, lab has become a runaway freight train, with no apparent end in sight.

Globally, the scenario for dramatic increases in demand is even brighter. Nearly every major retail chain in Europe is currently engaged in lab-grown diamond tests, tracking approximately two years behind the US trend line. Indian consumers are embracing super high-end lab, primarily D-IF/VVS. And China Gold, a chain with over 1,000 stores, has launched a major lab-grown diamond program, forcing the other Asian majors to follow suit.

Finally, recent strides in diamond chip technology research will likely result in a significant redirection of CVD growth away from gemstone use and into computer applications.

All of this presents a new set of mathematical curves. While lab-grown diamond supply will track in concert with the installation of new machines as an arithmetic progression (e.g., 2,3,4,5…), CVD demand will track as an exponential progression (e.g.,2,4,8,16…). In a horse race between different types of numerical progressions, the smart move is always to bet on the exponential curve.

So, how low will lab-grown diamond prices go? Mathematical models suggest we are approaching a bottom.

George Prout

George Prout is president of JB Bhanderi, the largest CVD grower in the world and maker of the Surreal Diamond brand. He is an avid student of luxury jewelry consumer behavior and is an acknowledged expert on trends and marketing in the independent space. He can be reached at george@surrealdiamond.com.