A good time to buy diamonds

Diamonds have had a good year so far. The prices big mining groups charge for rough diamonds rose by an average of 7% in the first half of 2014. And the long-term outlook is bullish. Production has stalled in recent years, after dropping from a record 180 million carats in 2005.

There has not been a major diamond mine discovery since the late 1990s, which implies that supplies will start dwindling in 2018, reckons Bain, a global management consultancy. Demand should grow by around 5% a year over the next decade.

America remains the biggest diamond market. It accounts for 39% of global demand, and grew by 7% last year, so the gradual recovery there bodes well, says Helen Thomas in The Wall Street Journal. The Chinese market, at 12% of global demand, is increasingly important. Sales of diamond jewellery there grew at an annual average rate of 27% from 2006 to 2012.

Like gold, diamonds are also seen as a store of value in emerging markets. A possible play on the growing diamond market is Petra Diamonds (LSE: PDL), says Thomas. It plans to grow production by two-thirds in the next five years and looks reasonably valued.