Brides-to-be may soon see their significant others get a sudden case of cold feet as diamond prices surge along with the rest of commodities.
Frank Oudeman for J. Crew
J. Crew's bridal store.
The Diamond Price Index is up almost 10 percent in 12 months, the biggest year-over-year increase since 2008, according to Morgan Stanley and the International Diamond Exchange. De Beers, the world’s biggest producer, said last week that prices for rough diamonds increased by 27 percent in 2010 to levels higher than before the global financial crisis.
Diamonds, which do not trade on an exchange, are simply mirroring the explosion in prices of other commodities that has taken place since the Fed began keeping interest rates near zero and instituted a Treasury-buying program.
Futures for other jewelry components silver , gold and platinum are up 90 percent, 23 percent and 19 percent respectively over the last 12 months.
Demand from China and other emerging markets is also driving the price increase in all of those basic materials, including diamonds. Determining what drives the cost of diamonds is harder to determine, because pricing for them is not as transparent.
But there may be a happy ending to this story after all—at least for brides and grooms. According to pricing research by Morgan Stanley, Tiffany has not yet raised prices on diamond engagement rings, despite the cost increases. Instead they are raising prices on other items.
“The company adjusted prices in early 2010 based on 2008/2009 input cost increases, and just last month raised prices on most, but not all, of the assortment in order to hold product margins flat,” said Kimberly Greenberger, retail analyst for Morgan Stanley, in a note to clients.
“Slow inventory turns reduce how suddenly Tiffany reacts, so the most recent price increase did not include diamond engagement rings.”
Morgan Stanley estimates that Tiffany turns its inventory over once per year, making the merchant less exposed to rising prices. That’s one reason why Greenberger likes the stock.
But the main reason the analyst is saying to buy Tiffany, even in an inflationary environment, is that its high-end customers don’t tend to notice prices creeping higher.
“Management is not aware of major unit volume changes when they raise prices and feels as though most customers are not very aware when prices move higher,” Greenberger wrote in the report today. Morgan Stanley estimates that Tiffany raised prices on most products by 10 percent in January and 10 percent this month.
But if you don’t fall into that high end, fellas, you’re on the clock.
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Trader disclosure: On Feb 16, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Terranova Owns (VRTS); Terranova Owns (C); Terranova Owns (SLXP); Terranova owns (BAX); Terranova owns (TEVA); Terranova Owns (UPL); Terranova Owns (GM); Terranova Owns (APA); Terranova Owns (CVI); Terranova Owns (SU); Terranova Owns (CNQ); Terranova owns (MS); Terranova owns (CME) puts; Adami Owns (AGU); Adami Owns (C); Adami Owns (GS); Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Adami's wife works for (MRK); Finerman's Firm Is Short (IWM); Finerman's Firm Is Short (SPY); Finerman's Firm Is Short (MDY); Finerman's Firm Is Long S&P Puts; Finerman's Firm Is Long Russell 2000 Puts; Finerman's Firm And Finerman Own (AAPL); Finerman's Firm Owns (BAC) Leap, Finerman Owns (BAC); Finerman's Firm Owns (BBY); Finerman's Firm And Finerman Own (BP); Finerman Owns (C); Finerman Owns (GOOG); Finerman's Firm And Finerman Own (HPQ); Finerman's Firm Owns (IBM); Finerman's Firm Owns (JPM), (JPM) Leap; Finerman Owns (JPM); Finerman's Firm Owns (M); Finerman's Firm And Finerman Own (MSFT); Finerman's Firm Owns (TGT); Finerman's Firm Owns (WMT); Finerman and Finerman's Firm Own (DAI); Jon Najarian owns (AAPL), is short (AAPL) calls; Jon Najarian owns (AMD), is short (AMD) calls; Jon Najarian owns (BP), is short (BP) calls; Jon Najarian owns (CBOE), is short (CBOE) calls; Jon Najarian owns (CME), is short (CME) calls; Jon Najarian owns (DE), is short (DE) calls; Jon Najarian owns (DELL), is short (DELL) calls; Jon Najarian owns (DG), is short (DG) calls; Jon Najarian owns (HPQ), is short (HPQ) calls; Jon Najarian owns (JDSU), is short (JDSU) calls; Jon Najarian owns (M), is short (M) calls; Jon Najarian owns (NDAQ), is short (NDAQ) calls; Jon Najarian owns (NYX), is short (NYX) calls; Jon Najarian owns (RIMM), is short (RIMM) calls; Jon Najarian owns (JNPR), is short (JNPR) calls; Jon Najarian owns (AET), is short (AET) calls; Jon Najarian owns (AKAM), is short (AKAM) calls; Jon Najarian owns (BX), is short (BX) calls; Jon Najarian owns (RAX), is short (RAX) calls; Jon Najarian owns (SVU), is short (SVU) calls; Jon Najarian owns (SWY), is short (SWY) calls; Jon Najarian owns (X), is short (X) calls; Jon Najarian owns (WMT), is short (WMT) calls; Karabell owns (AAPL); Karabell and River Twice Capital own (BRCM); Karabell owns (C); Karabell and River Twice Capital own (CSCO); Karabell owns (FCX); Karabell owns (GOOG); Karabell and River Twice Capital own (IBM); Karabell owns (RIMM); Karabell and River Twice Capital own (GS); Karabell owns (GE)
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