Diamonds, like art, are a commodity that is gaining attention as an alternative investment.

Increases in the price of the rarest colourless and coloured diamonds are attracting wealthy investors and structured funds as stock markets and real estate values decline.

The price of five-carat gems with the potential to be sold at US$1 million ($1.35 million) or more has risen 76.5 per cent in the year to May 2008, according to www.idexonline.com, the website of the International Diamond and Jewelry Exchange.
“Theres a group of very savvy, tremendously wealthy people who have put a small portion of their fortunes aside to invest in diamonds,” says Francois Graff, managing director of London-based Graff Diamonds International. “Theyve made incredible returns.”

Five years ago, dealers were paying US$70,000 per carat for colourless diamonds of 10 carats and more, says Graff.

“Now were paying over US$200,000 per carat.”

There are only about 200 highest-grade, D-flawless, colourless diamonds of more than five carats discovered per year, says Raymond Sancroft-Baker, Christies Internationals European director of jewellery. The annual yield of large-scale blue and pink stones is considerably smaller.

“Diamonds are getting rarer. The earth just isnt giving them up,” says Sancroft-Baker.

Diamond Circle Capital Plc, a specialist investment fund listed on June 25 on the London Stock Exchange by Diapason Commodities Management SA, is the first publicly listed fund to invest in rare coloured and colourless diamonds, according to the International Diamond and Jewelry Exchanges website.

“Over the last 12 months, the best pink and blue diamonds have increased in price between 75 and 100 per cent,” says Alan Bronstein, a New York diamond dealer whose Aurora Collection of 296 coloured diamonds is on loan to the Natural History Museum in London. “These are some of the rarest and most colourful things in the world.”

Graff says that within the last three months he has sold a D-flawless, emerald-cut, colourless diamond of 243.96 carats to an Asian buyer for more than 50 million ($134 million).

“There were quite a few people ready to buy that stone,” says Graff, who has placed a similar price on a flawless, 20-carat, fancy, deep-blue diamond.

The record for any gemstone sold at auction is US$16.5 million with fees paid for the 100.1-carat Star of the Season pear-shaped, colourless diamond at Sothebys, Geneva in May 1995, says Sothebys.

“When stockmarkets go down, its always good for us,” says Joanna Hardy, senior specialist at Sothebys jewelry department in London. “People with a lot of surplus cash turn to something more tangible.”

Hardy says she doesnt expect prices for large-scale colored and colorless stones to fall within the next six months. Her company is selling diamonds to buyers from a record number of countries.

“Its not as if there are suddenly going to be more of them,” she says

Credit is given to Bloomsberg By DiamondTopics.com