Industry Update: Diamonds May Surpass Gold for Investing

A scattering of "brilliant" cut diam...

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According to David Parkinson of The Globe and Mail , there’s a sly little gemstone sneaking up stealthily behind gold to become the big-ticket investment grab of the year. While gold can’t seem to stay out of the headlines, diamonds have been steadily gaining Wall Street-cred in their own right.

Traditionally, diamonds and gold move in the same direction on the charts, but since the 2008 financial crisis, gold has skyrocketed thanks to its reputation as a solid way to store wealth. Diamonds, meanwhile, experienced “a recession-driven drop-off in jewellery sales” that weighed heavily on their market value. But over the course of the last year, diamonds are again trending upward as investors start to realize that diamonds may just be an even better investment than gold.

“Diamond companies look underpriced versus gold, [platinum group metals] and silver (SI-FT) stocks on a [price-to-net-present-value] basis,” wrote Edward Sterck, diamond-producer equity analyst for BMO Nesbitt Burns in London, in a recent research report.

Whether diamonds are actually a sounder investment than gold is debatable, but according to analysts “the outlook for gems looks strong on a good old fashioned supply-and-demand basis.”

Since 2006, the mining and production of diamonds has dropped off significantly. Diamond producers aren’t actively seeking new mines, or even doing much with those they’ve already established. Rather, they’re depleting the existing supply of diamonds, while a new demand lurks on the Eastern horizon.

China and India are producing a surge of new consumers eager to buy jewelry, which is viewed as a long-lasting investment especially in their cultures. According to the Globe and Mail, “Last year, diamond demand jumped 31 per cent in India and 25 per cent in China.”

Meanwhile, in the U.S., the diamond demand jumped 7% in 2010 – solidifying diamonds as a sound investment for wealth and not just the jewelry box.

To read more, visit The Globe and Mail’s website.

Liz for Raymond Lee Jewelers, your trusted source for jewelry industry updates, news and trends.

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