MUMBAI: A spike in diamond prices over the past six months is slowly eating into the sales volume of studded gold jewellery as consumers opt for relatively cheaper plain gold jewellery. Prices of rough diamonds, the raw material for studded gold jewellery, have risen by a staggering 50% over the past five-six months. This rise is being passed on to consumers by jewellers.

For example, the price of a standard kuda jodi, a seven-stone earring of 1 carat has shot up from rupee 50,000 in January to rupee 75,000 today, while 10-gram gold was priced at rupee 22,512 on Friday, up a mere 8% from January. The spike has exacerbated the price difference between gold and diamond jewellery and seen consumers, who normally prefer to invest in diamond jewellery, slowly shifting to plain gold jewellery, said jewellers. "While the value of diamond jewellery sales has gone up, we are noticing a gradual shift in buyers' preference to gold from diamond jewellery because of a dramatic rise in rough prices," said Sandeep Kulhalli, vice president , retail and marketing , Tanishq, which derives 70% of its turnover from plain gold jewellery and the rest from studded gold jewellery.

"Rough prices have increased by around 50% in the last four sights held by miners and such a sharp rise in so short a time has definitely surprised buyers." A sight is an allocation of rough diamonds to sightholders or diamantaires by miners as part of a contractual agreement. A sight is normally held once every five weeks during which each sightholder receives a box of diamonds of a set quality and quantity at a preset price. Major international companies that hold sights include Diamond Trading Company (DTC), the rough diamond distribution arm of De Beers, Rio Tinto and BHP Billiton. Umesh Shah, vice president, jewellery division, Shrenuj, a leading manufacturer of studded gold jewellery, echoed Kulhalli's view. "We are having to increase our network and frequency of bookings.

We also have to take many smaller orders in place of large ones to maintain our sales as diamond prices have shot through the roof in a short time." Tara Jewellers' CMD Rajeev Sheth, which has 31 owned stores, said investors allotting, say, Rs 1 lakh to buy half a carat or a little more of diamonds were "undoubtedly" shifting to gold where the same amount would fetch them around 50 grams of the metal. A jeweller, requesting anonymity, said that being the world's largest roughs supplier, DTC should take note of the fact that such a price run up could lead to demand destruction. "I don't think existing demand warrants such a spike. Unlike oil, demand for diamonds is not price inelastic so at some point Indian diamantaires, who cut and polish 11 out of every 12 diamonds sold globally, could go slow on rough purchases," he said.