I started last year’s preamble to the PolishedPrices overall index forecast with the following observation: “It is said that at the moment there are two types of forecasters. Those who don’t know what is going to happen, and those who don’t know that they don’t know what is going to happen.”



Despite that, and putting myself firmly in the first camp, last years forecast proved to be remarkably close to what actually happened, both in terms of the level that the overall index finished at, and in terms of the turning points in its path throughout the year.



In many ways, despite this time last year the world being in the centre of an unprecedented financial meltdown, at the start of this year there are more uncertainties as to how the coming twelve months will progress.



In January last year, the lack of liquidity had brought both the polished diamond and the rough diamond markets to a virtual standstill.



Towards the end of last year, shortages of rough diamonds coming onto the market pushed rough diamond prices to levels unjustified by the prevailing price of polished.



There is still a great deal of price resistance from the retail end of the pipeline, and it is far from clear that diamond manufacturers will be able to pass on their extra costs.



Early anecdotal reports for the US seem to suggest that the holiday period was an improvement on last year, but was still much lower than the years prior to that. That being said, however, consumer demand should have been enough to make the US retailers begin to start looking to replenish their stocks, creating a forward ripple.



Other markets, especially the emerging Asian markets, appear to be performing well, so we can are expecting to see some sustainable diamond price growth throughout the year.



Our central forecast is that diamond prices will grow during the first few months of the year, before steadying during the summer, followed by a further surge through the autumn.



This forecast leaves the overall index at the end of 2010 at 123.0, 6% above the starting level, and the average for the whole of 2010, 5.5% above the average for 2009.



As usual, I offer a small prize to the reader who provides, by the end of January, the best estimate of where the overall index will stand on 31st December 2010. Please send your entry to richard@polishedprices.com.