Diamonds have emerged as a haven investment alongside favorites 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 percent 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 a carat, up from about $100,000-$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 of South Africa, held back supplies to push prices up.
"Constrained supply, particularly for large, high-value stones, looks set to continue for the foreseeable future," said Jon Bergtheil, analyst at Citigroup.
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. "They are moving from a traditional gold band to a diamond-set ring. This is having a huge effect."
Diamond traders said that the price increase was having an unexpected knock-on effect for grooms in the US and Europe, who are opting for smaller, odd-shaped and cheaper gems for their brides.
The price surge is also stoking investor interest. "When you look at seriously expensive stones, they’ll often go straight into a safe," said Charles Wyndham, founder of PolishedPrices. But he added there is now "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 popular wine and fine-art funds. Yet analysts warn that diamonds have been a disappointing investment over the past decades. Adjusted for inflation, diamond prices are far below their early 1980s peak.
Diamonds – together with gold and investments such as art – yield no annual interest. It also costs money to store and insure the gems. But in a low interest rate environment 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.