Gloomy update from Gem Diamonds

FTSE 250 firm Gem Diamonds said it expected diamond prices to fall in the short term as the market continued to be volatile.

In its first half update the company said May and June saw the first negative movements in its rough diamond market price indices, as prices dropped across the sector.

Chief Executive Clifford Elphick said the global macroeconomic climate and the ongoing financial crisis in the Eurozone in particular, continued to weigh on rough and polished diamond prices.

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"This, together with the comparatively lower quality production from Leteng [mine] in the period when compared to the first half of 2011, which saw six exceptional diamonds recovered, is reflected in the company's revenue generated during the period," he said.

The firm added that the market had become more cautious and together with the traditional slowing of the market in July and August (American and European holidays) diamond prices across the board were expected to weaken slightly.

However, Gem said its longer term outlook remained positive as the growth in demand for diamonds continued to exceed the growth in supply.