Industry Analysis

US Consumer Confidence Remains Strong; Alluvial Diamond Tracking and Illegal Gold


Placeholder Alt Text
Operations at Alrosa’s Lomonosov deposit in Western Russia. Alrosa, along with De Beers, has drastically reduced sales of rough diamonds to deal with the excess supply. Photo Russell Shor/GIA

Consumer confidence in the US remained strong in August, despite the volatile stock market and increased costs stemming from the trade war with China, according to The Conference Board, which conducts the monthly Consumer Confidence Survey.

“Consumer confidence was relatively unchanged in August, following July’s increase,” said Lynn Franco, senior director of economic indicators at The Conference Board. “Consumer expectations cooled moderately, but overall remain strong. While other parts of the economy may show some weakening, consumers have remained confident and willing to spend. However, if the recent escalation in trade and tariff tensions persists, it could potentially dampen consumers’ optimism regarding the short-term economic outlook.”

Many economists believe that signs of a recession have been developing, but that the positive attitudes of US consumers and their spending have kept the economy from sliding into it.

RETAIL NUMBERS

 

Some independent US jewellers, notably at the higher end, have done well this year, but the chains continue to report lacklustre results.

Signet group reported a 1% decline in same store sales for the second quarter of the fiscal year, with its Zale Corp. division posting a slight rise, while Kay Jewelers and Jared the Galleria of Jewelry posting respective declines of 3% and 4%. Sales at the Piercing Pagoda, the kiosks selling low-priced jewellery, rose 11% and its online sales, which comprise 12% of the company’s business, rose 4%.

Tiffany & Co. registered a 3% decline in same store sales worldwide and 5% in North America for the first half of the year, with Asia sales falling 1%. The company said it still expects sales will increase by single digits worldwide through the Christmas period.

HONG KONG SHOW

The protests in Hong Kong have taken their toll on the region’s retail trade, particularly after the participants disrupted the airports and rail services. Sales of jewellery, watches and luxury goods are down 9% for the first seven months of the year, with steep declines in July – 24% for all retail.

The September Hong Kong Jewellery & Gem Fair will take place as scheduled, but several groups, including the Israel Diamond Manufacturers Association, have asked the organisers to postpone it. In response, the fair is offering hotel deals to lure buyers who may be hesitant about attending.

ROUGH DIAMONDS

Rough diamond sales continue to plummet in the wake of oversupplies and tight financing.

De Beers August cycle sales totalled $280 million (£227 million) – about 40% lower than the August 2018 cycle, but slightly higher than July’s allocation of $250 million (£203 million) – the smallest in four years. De Beers’ sales are down 44% from last year’s levels. In addition to purchase deferments, the company is also buying back certain goods from clients.

In a New York Times interview, De Beers’ CEO Bruce Cleaver called the situation “significant indigestion” caused by the banks’ credit squeeze and difficult geopolitics.

Alrosa was predicting that the market will stabilise once “stocks even out in accordance with market demand”, but its sales were 35% down through the first seven months of the year; the July allocation was down 50% from the previous year while August rough sales were down 36% from the same period last year. Like De Beers, Alrosa is allowing clients to defer rough purchases until early next year.

The company announced it may trim rough sales by 5% to 10% next year if market conditions persist.

ALLUVIAL DIAMOND TRACKING

Artisanal diamond miners in the West African nation of Guinea may see more returns from their diamond finds through a traceable supply initiative developed by a Belgian sustainable development organisation in cooperation with the Antwerp World Diamond Center (AWDC). The diamonds produced under this programme will be traced from individual miners through vetted supply chains and sold in Antwerp under the auspices of the AWDC.

Such programmes are rare for miners of alluvial diamonds because the deposits tend to be spread over wide areas and are difficult to monitor. The deposits are located in the Banankoro region of the country and the Belgian organisation, CAP Conseil, has been monitoring production to ensure it conforms to the Maendeleo Diamonds Standards introduced by the Diamond Development Initiative (DDI) in April.

The Maendeleo Diamond Standards comprise eight specific principles covering legality, consent and community engagement, human and worker’s rights, health and safety, violence-free operations, environmental management, interactions with large-scale mining and site closure. Each of these principles is comprised of provisions defined by measurable requirements, concrete performance criteria and a list of acceptable audit evidence.

DDI developed the Maendeleo Diamond Standards in consultation with a wide range of stakeholders, including governments, industry and local civil society organisations, as well as artisanal and small-scale diamond miners in four countries of Africa and South America. DDI then conducted pilot projects in Sierra Leone in 2012 and 2013 to field-test the system, and expanded it into a full programme in 2014.

ILLEGAL GOLD

Reuters has reported that Swiss gold refiners and a major financial house have identified counterfeit gold bars used in refining – kilo bars with forged Swiss bank markings – in their facilities. The bars are real gold of high fineness, but are believed to be from suspect sources, such as money launderers, criminals or sanctioned regimes.

The report estimates that at least $50 million (£40 million) worth of gold bars have been identified by the refiners and J.P. Morgan, but adds that it is likely that many more have slipped through the checks and into the system. Those who found the counterfeits told Reuters they are very professionally done so there are probably “way, way more” in circulation.

While there is no conclusive evidence of the source of the gold bars, authorities believe they are being made in China and sold to traders in Japan, Hong Kong and Thailand.

A second report, this from the New York Times’s “The Weekly” series, notes that illegally mined gold in Colombia is still entering the market as well. This issue was first reported four years ago. The report described the environmental and social cost of Colombia’s illicit gold mining and noted that two-thirds of the metal coming from the country went through illegal channels.

This issue is critically important because numerous surveys have shown that consumers increasingly care about the origins of the products they buy. At the GIA Symposium last year and at a GIA-sponsored seminar in Las Vegas last June, top executives from across the industry stressed that ethics and sustainability are now top priorities for maintaining consumer trust in their brands and products.

Russell Shor is senior industry analyst at GIA in Carlsbad.