Are diamonds still worth investing in?

Diamonds might be a girl's best friend, but are they set to be investors' friends too? Yes, according to the diamond industry.

A recent survey at the Hong Kong International Jewellery Show says that the industry is expecting 10% growth this year on top of sales growth of 6%-7% worldwide in 2004 as reported by De Beers, who control 65% of global production. Demand may be growing, but supply is increasingly tight. De Beers is operating on "a working inventory of just three months' supply", says Andrew Cave in The Daily Telegraph.

China, of course, is the new factor. "Ten years ago, almost no brides in China received engagement rings," Gareth Penny, managing director of De Beers, told Cave. Today, in major cities, more than 80% of soon-to-be brides now sport a ring. China is now the third-largest consumer of diamonds in the world, at 10%-11%, after the US and Japan (which has a 12% share), and India is only just behind China.

But 80% of diamond demand is for industrial purposes, which means that, unlike other gems, the market is more protected from fluctuations in consumer demand. Its chemical properties especially its hardness mean that it has many uses, from drill bits to surgical equipment.

However, they are facing increasing competition from synthetic diamonds. So are diamonds for jewellery, as substitutes or fakes become more convincing. "With synthetic diamonds flowing in from China and Korea, the market is very vulnerable," says gemmologist and jewellery dealer Satish Shah.