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INVESTMENT DIAMONDS ON TRACK FOR +20% RETURNS

Investment diamond prices continued their upward trend in Q1 2011, rising a further seven percent in March and 13% for the quarter. Investment Diamond prices have now returned to their pre-financial crisis levels of Q2 2008.
 
After a good Holiday Season investment diamond prices broke price resistance levels that held steadfast during the second half of 2010 and continued to trend upwards throughout the first quarter of 2011. With rough prices remaining very robust throughout 2010 there was only one direction polished prices could go once these strong rough prices and the increase in demand moved its way through the diamond pipeline in the last quarter of 2010.
 
A further indication of the diamond market’s strength came last week at the De Beers’ March sight. For the second time this year De Beers increased its rough diamond prices with an overall average increase of ten percent on a relatively large estimated sight value of $500 million. Although part of the reasoning behind this price hike may have been a veiled attempt to keep premium levels in the secondary markets in check, it is clear that De Beers and other major producers remain bullish and believe that the market can absorb further price increases.
 
Commenting on recent developments within the global diamond trading markets, Fusion Alternatives Chief Investment Officer, Saul Singer noted that “the global diamond market is strong and we expect polished diamond prices to continue to trend upwards in Q2. Notwithstanding this, we are seeing increased speculative trading activity in inter-dealer markets as the market adjusts to the continued surge in rough diamond prices.”
 
Over the last twelve months rough diamond prices have soared increasing by as much as 40 percent in some categories. By contrast polished prices have only commenced to respond in a more moderate fashion over the last two months. The time lag between rough and polished price movements can be as long as six to nine months due to the strong buying power and price resistance by the diamond jewelry retail market. “We are noticing a greater incidence of market players shifting towards buying on the market in order increase inventory levels in a rising market as opposed to a more natural buying activity in response to increased demand from customers” Singer noted.
 
The investment diamond market is somewhat protected from the current increase in speculative trading activity as the rise in this market is being underpinned by macro-economic and geopolitical developments around the globe spurring an increased interest and demand for tangible ‘safe-haven’ assets. Investment diamond prices are expected to continue to trend upwards in the near-term and are on track to return +20% this year.