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Diamond prices hit by stock market slump, China

Is it time to splash on some investment jewelery? The answer may be yes if you fancy a diamond ring, with prices for the gemstone down as much as 29 percent since last year.

Diamond prices softened in August, as the global stock market slump hit discretionary spending and jewelry demand in China thanks to a clampdown on luxury gift-giving and the slowdown in the world's second-biggest economy.


Diamonds
Mark Evans | Getty Images

Prices for benchmark 1-carat (0.2 gram) diamonds fell by 0.9 percent last month, while cheaper 0.30-carat diamonds fell by a 1.7 percent, according to data out on Wednesday from the Rapaport Group, a body supporting the international diamond trade.

This continues a longer-term trend that has seen the price of 1-carat diamonds and 0.30-carat diamonds decline by 12.9 percent and 29 percent over the last 12 months, according to the Rapaport Group.

"Polished diamond prices continued to slide in August. Fewer dealers bought inventory and those with money waited for lower prices. A slump in global stock markets further dampened sentiment as the outlook for luxury spending diminished along with shareholder wealth," said Rapaport in its monthly report.

Even if August's tumult in stock markets proves isolated, Rapaport warned that the slowdown in China's economy, coupled with Beijing's clampdown on expensive gift-giving among officials and the devaluation of the yuan, would prove an additional restraint on discretionary spending.

"While expectations from the Hong Kong Jewellery and Gem Fair in September are relatively low, dealers are pinning their hopes on holiday demand to stem the downtrend in polished prices that recurred in August," it said.

The impacts of the precious metal and luxury gem downturn are widespread, with Reuters reporting on Monday that more than 5,000 diamond polishers in India's diamond capital of Surat had lost their jobs since June. Nearly half a dozen large diamond companies in the city have closed down, according to the news wire.

"Earnings (in Surat) have fallen, as a majority of workers who are employed on a contract basis process fewer stones put through for manufacturing," Rapaport said in its report on Wednesday.

Prashanth Vishwanathan | Bloomberg | Getty Images

Time to boost the jewelry collection?

Jewelry returned an average of 1.9 percent in 2014, according to the Coutts Index of "passion" investments published last month. This trumped the return on watches, fine wines and trophy properties, although it was dwarfed by the 40 percent averaged on a "classic" car investment.

This year, jewelry investors may be less lucky, with precious metals prices falling across the board as part of a broad-based decline in commodities. Spot gold prices have fallen 11 percent over the last 12 months, while the price of silver is down a sharp 24 percent and platinum is down 29 percent.

Jewelers are feeling the pinch, with Tiffany & Co.'s second-quarter earnings and sales coming in below expectations. The U.S. luxury retailer flagged that the strength in the U.S. dollar had knocked 7 percent off worldwide sales.

Meanwhile, De Beers, the world-leading diamond producer, posted revenue of $3.0 billion for the first six months of 2015, down 21 percent from the $3.8 billion posted in the same period a year before.

As a result of the weakness, the Republic of Botswana, which owns 15 percent of De Beers, cut its 2015 economic growth forecast to 2.6 percent in August from the 4.9 percent predicted in February.

—By CNBC's Katy Barnato. Follower her on Twitter @KatyBarnato.