Correlation or Causation?

I was looking through gold vs diamond prices and thought it was worth sharing. Are these trends unrelated, or is there a connection?

A Possible Explanation

One possibility: as gold prices rise, higher costs could push retailers to offset expenses by lowering diamond prices in jewelry to maintain affordability.

For instance, consider a $10,000 piece of jewelry. If the cost of gold doubles, retailers face a choice:

1. Raise jewelry prices, which could lower equilibrium demand and reduce unit sales.

2. Squeeze diamond prices, in an effort to keep overall jewelry prices stable.

Either way, midstream diamond pricing comes under pressure. This dynamic could explain some of the patterns we observe when comparing gold and diamond price movements.

Other Factors at Play

Surely, there are many other factors influencing both markets—macroeconomic trends, currency fluctuations, changes in consumer demand, and evolving preferences in jewelry design. Still, the potential interplay between gold and diamond pricing is an interesting angle to consider.

Explore More

If this piques your interest, check out comparisons with some other signals at analytics.diatech.ai.

What do you think? Is this correlation or causation, or are we just seeing patterns where none exist?