Investors turn to gems to ensure returns as stock markets decline

Diamonds, like art, are a commodity that is gaining attention as an alternative investment.

Increases in the price of the rarest colorless and colored diamonds are attracting wealthy investors and structured funds as stock markets and real-estate values decline.

The price of 5-carat gems with the potential to be sold at $ 1 million or more has risen 76. 5 percent in the year to May 2008, according to http: // www. idexonline. com, the Web site of the International Diamond and Jewelry Exchange.

"There's a group of very savvy, tremendously wealthy people who have put a small portion of their fortunes aside to invest in diamonds," said Francois Graff, managing director of London based Graff Diamonds International. "They've made incredible returns." Five years ago, dealers were paying $ 70, 000 per carat for colorless diamonds of 10 carats and more, Graff said. "Now we're paying over $ 200, 000 per carat." There are only about 200 highest-grade, D-flawless colorless diamonds of more than 5 carats discovered per year, according to Raymond Sancroft-Baker, Christie's International's European director of jewelry. The annual yield of large-scale blue and pink stones is considerably smaller.

"Diamonds are getting rarer. The earth just isn't giving them up," Sancroft-Baker said.

New York diamond dealer Alan Bronstein said, "Over the last 12 months, the best pink and blue diamonds have increased in price between 75 and 100 percent." Joanna Hardy, senior specialist at Sotheby's jewelry department in London, said colored diamonds used to be viewed as curiosities.

"Now buyers are taking colored diamonds much more seriously," Hardy said. "People want to have something different. And they value rarity." Graff, of Graff Diamonds International, said that within the last three months he privately has sold a D-flawless, emerald cut colorless diamond of 243. 96 carats to an Asian buyer for more than $ 99 million. "There were quite a few people ready to buy that stone," said Graff, who has placed a similar price on a flawless 20-carat fancy deep blue diamond.

The record for any gemstone sold at auction is the $ 16. 5 million with fees paid for the 100. 1-carat "Star of the Season" pear-shaped colorless diamond at Sotheby's, Geneva in May 1995, according to Sotheby's.

"When stock markets go down, it's always good for us," said Hardy of Sotheby's. "People with a lot of surplus cash turn to something more tangible." Sotheby's was selling diamonds to buyers from a record number of countries, Hardy said.

"We've got a lot of customers from the Middle East, Russia and the Ukraine. And there are more buyers from Europe than America at the moment," she said.

Hardy does not expect prices for large-scale colored and colorless stones to fall within the next six months.

"It's not as if there are suddenly going to be more of them," she said.