Sentiment in the diamond industry improved amid rising expectations for the holiday season. A rallying stock market fueled optimism as the Dow average climbed 3% in November, and anticipation of a US-China trade deal helped as well.

Polished prices firmed, supported by reduced supply and steady US and Chinese demand.

Polished inventory declined, resulting in shortages of some diamonds. There remains a large volume of lower-quality goods, mainly brown, green and milky (BGM) and fluorescent stones. Since buyers are insisting on non-fluorescent or faint goods, diamonds with fluorescence are selling at deeper discounts. Consumers aren’t bothered by this issue even if the trade devalues these stones. This creates opportunities for traders.

Manufacturers reduced polished production in the third quarter and closed factories over Diwali, contributing to the inventory drop. Demand for 0.30- to 0.50-carat goods also picked up as jewelers in China prepared for the Chinese New Year.

Cutters are now raising production to compensate for shortages and for jewelers’ expected restocking orders after the season. Rough demand has improved, with De Beers’ 5% to 7% price cuts helping raise manufacturing profit margins.

The focus has shifted to retail. Initial reports of Thanksgiving weekend sales have been positive, particularly regarding online and mobile channels. Jewelers have taken a lot of goods on memo to diminish their inventory exposure. In this environment, dealers can add value by matching the right diamond with the right person at the right time, place and price.