According to September’s Diamond Prices Index, which records the average retail price per carat of loose diamonds, values have steadily risen by nearly 75 per cent since January 2006. Prices are still rising. In the last year the price for the best polished diamonds of 5 carats has risen as much as 50 per cent from $100,000 a year ago to $150,000 a carat. South African miner De Beers, in its July results posted record first half rough diamond sales totalling nearly $4 billion. 

The investment story is playing out in auction houses – as well as trading rooms - around the world. In Macau last week, a rare 10 carat vivid yellow diamond sold for a record $1.6 million, while another yellow diamond sold for nearly $3 million the week before in an Ohio auction. Demand is being driven by Asia. In June the Hong Kong Jewellery & Gem Fair saw a 25 per cent increase in the number of exhibitors on last year - an all time record.

$1.6million Fancy Vivid Yellow Diamond at Macau Auction

“Diamonds are now the most concentrated form of wealth on earth. Hailed as the next ‘gold’, diamonds have become hot property and have performed year-on-year better than practically any other investment,” said Ansar Ali, chief executive of Elite Gems, a Mayfair-based investment group.

He added that the Chinese and Indian demand for jewellery are buoying high end investments such as diamonds. As the shift of wealth moves from the west to east many companies are now setting up offices overseas to accommodate the insatiable demand for high-end goods.

“The market for natural coloured diamonds is very strong at the moment and prices have risen by 25 per cent within the last year.  If that pace continues, an investment in natural coloured diamonds today could double in value in the next 24 months. With low capitalist self-confidence in paper assets, loose coloured diamonds are an outstanding way for investors to diversify their portfolio, as they may provide support for the duration of hyperinflation, international financial crisis, or in times of dire need," he added.

A Gold Bubble?

However, diamonds’ price rise pales in comparison to gold’s meteoric surge of nearly 200 per cent in the last five years, according to Goldprice.org, although in recent months the precious metal has been unusually volatile.  

Gold has traditionally been considered a safe haven from global and political turmoil and a hedge against inflation, deflation and currency devaluation, but current market uncertainty is beginning to test its reputation for stability, as fear drove a selloff on Friday. Last week traders swapped their profitable gold holdings in favour of liquidity in cash as fears over the Eurozone debt crisis and the battered global financial system lingered.

However notwithstanding a few fluctutations, gold is expected to continue to rise buoyed by demand in Asia. According to the World Gold Council, gold demand in China is forecast to rise 10 per cent this year.

“Basically a lot of supportive factors for gold are still in place…things like Asian demand are very strong at this point,” said Standard Chartered analyst Daniel Smith in a report last week.