Flight to quality gives diamonds a boost

Both rough and polished diamond prices are likely to fall by 5% in 2012, reckons Charles Stanley's Kieron Hodgson. But the long-term outlook remains encouraging. Supply looks tight, with no major finds in the last 20 years.

Demand for rough diamonds should steadily increase in the next few years, with the expansion of the middle classes in Asia a key driver. In a decade, the American share of the high-quality diamond market has fallen from 60% to 40%, says Glenn Turner, commercial director at Gem Diamonds.

Diamonds aren't just status symbols, however, says Mark Robinson in the Investors Chronicle. "Fear of inflation and a shortage of alternative financial products and investible markets have resulted in a rush for physical assets among China's middle classes." Asian demand has shown little sign of fading despite the global downturn. Given the solid structural story, a diamond stock or two may well be worth tucking away. Two worth researching are Gem Diamonds (GEMD) and Petra Diamonds (PDL).

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