Diamonds have emerged as a haven investment alongside favourites gold and the Swiss franc, with surging demand from Asian buyers driving prices of the precious stones.
Consumption from China and India has helped boost prices nearly 50 per cent since the start of 2010 – mostly in the past six months – and pushed them to historic highs, according to industry price lists and gem traders in Antwerp, the global capital of the diamond business.
The value of top-quality polished diamonds of 5 carats, or 1 gram, has risen to about $150,000 (U.S.) a carat, up from about $100,000 to $120,000 a year ago, according to PolishedPrices, which compiles data on the wholesale market. Other categories of polished and rough diamonds have also risen.
Rough diamond prices were hit hard during the credit crisis, but saw support in 2009 after the leading producers, including De Beers SA of South Africa, held back supplies to push up prices.
The production cuts depleted inventories, which, combined with the surge in Asian demand, have contributed to record prices, industry executives said. “In Asia, the emerging middle classes are buying their first diamonds,” said Pooja Kotwani, the India managing director of Rapaport, a diamond services company. “This is having a huge effect.”
Diamond traders said the surge is having an unexpected knock-on effect for brides and grooms in the U.S. and Europe, who are opting for smaller, odd-shaped and cheaper gems. The surge in prices is stoking investor interest, too.
“When you look at seriously expensive stones, they’ll often go straight into a safe,” said Charles Wyndham, founder of PolishedPrices. But there was “a huge amount of interest to open up lower-value diamonds to investors as well”.
Several groups are putting together funds to give non-specialist investors exposure to diamonds, echoing wine and fine art funds that have become popular of late. Yet analysts warn that diamonds have been a disappointing investment over the past few decades. In real terms, adjusted for inflation, diamond prices are far below their peak of the early 1980s.
Diamonds – together with gold and investments such as art – yield no annual interest. It costs money to store and insure the gems. But, in an environment of low interest rates as central banks try to reactivate the global economy, that is a small price to pay. Conversely, if interest rates rise, particularly in Asia, diamonds could suffer against yielding assets.