Supply glut, lab-grown alternatives: What's behind the fall of diamond prices to record lows

Natural diamond prices have fallen 51% over five years, with average 1-carat stones at $3,898 versus $8,007 in 2021, as excess mined supply and lab-grown alternatives erode demand. Lab-grown engagement-ring center stones accounted for 61% of 2025 sales, while the lab-grown diamond market is projected to exceed $92 billion by 2034 from $29.46 billion in 2025. Supply cuts, including De Beers' more-than-two-year Venetia mine halt, could support select natural-diamond prices, but analysts favor jewelry retailers over physical stones: Signet has risen 21% in 2026 after raising its profit outlook, supported by lab-grown products with estimated 60%-65% gross margins versus 40%-45% for natural diamonds.

Analysis

The investable signal is retail mix shift rather than gemstone-price direction. SIG can monetize lab-created stones if attachment rates in fashion jewelry lift ticket size faster than promotional intensity, but the category’s rapidly falling input cost creates a medium-term risk that retail ASP gains are competed away. The key 1-3 month verification points are gross-margin guidance, inventory turns, and bridal conversion; a mix-driven sales gain without stable merchandise margin would be low-quality growth.

SIG’s recent rerating leaves less room for an unqualified long: post-guidance momentum is now priced more on sustained margin execution than on category adoption. BRLT has more asymmetric downside despite its category credibility, because a digitally native pure play must spend aggressively to retain traffic as lab products become increasingly interchangeable; customer-acquisition cost and discounting can overwhelm gross-margin optics. PNDORA is the cleaner defensive exposure if branded design and owned retail distribution preserve pricing, though its broader discretionary demand and FX exposure dilute the diamond-specific thesis.

For mined supply, production cuts may support select wholesale categories over 6-18 months, but they do not restore the historical scarcity premium while lab supply scales. The more consequential Anglo American implication is that De Beers becomes a potentially larger capital-allocation and disposal overhang, not a near-term earnings recovery. Do not use U.S.-listed AAL as a proxy for Anglo American; it is American Airlines. Thesis falsification for retail longs: two consecutive quarters of gross-margin contraction or inventory growth materially above sales growth; for natural-diamond recovery, broad polished-price appreciation must persist through the next holiday sell-through rather than remain quality-specific.

Key Decisions for Investors

• Maintain/establish a modest long SIG only on post-earnings consolidation rather than chase momentum; target a 6-12 month hold contingent on merchandise margin and inventory turns holding versus guidance. Risk/reward is favorable only if fashion-lab mix translates into earnings revisions, not merely higher sales; exit on a guidance cut or two quarters of margin deterioration.
• Express competitive normalization via a 3-6 month pair: long SIG / short BRLT, sized beta-neutral. SIG has scale, store-based service and financing advantages, while BRLT is more exposed to online price transparency and acquisition-cost inflation. Cover the short if BRLT demonstrates sustained EBITDA-margin expansion alongside declining marketing expense as a percentage of revenue.
• Use PNDORA as a watch-list long rather than a direct category trade; initiate after evidence that lab-created jewelry is additive to core branded sales rather than cannibalistic. Reassess over the next two reporting periods for same-store-sales resilience and gross-margin stability; FX-driven earnings misses are the primary non-category risk.
• Avoid direct exposure to physical diamonds and avoid treating U.S. ticker AAL as a mined-diamond hedge. For Anglo/De Beers exposure, monitor the correctly listed London ticker AAL and any formal asset-sale, impairment, or mine-restructuring disclosure; absent valuation and segment cash-flow data, this is an alert rather than a trade.