The Shift From Jewellery to Investment, Are Diamonds the Next Asset to Acquire?

Jewels are finally starting to shine. With gold prices down and currency values roiling, some investors and collectors are scouring for creative alternatives where they can store cash and move it around quickly in a heartbeat.

“People are exploring ways to exercise more control over their money-they just want to diversify their assets.”

For this reason diamonds, arguably the hardest asset around are no longer just a girl’s best friend. Men are the ones primarily responsible for moving forward the $71 billion U.S. market for jewellery, and not because they want to spoil their partners on special occasions. Men, as well as some women, are increasingly shifting a portion of their assets into diamonds and coloured gems as pure investments, attracted by jewellery’s portability and global appeal, experts say.

Diamond prices often climb when stocks are falling and vice versa. But the long view on diamond values is reassuring, jewels and art experts say: Last month, the average asking price for a one-carat diamond among gem dealers was roughly $10,500, up 31% from a one carat’s going rate six years ago, according to the RapNet Diamond Index, which tracks diamond prices among 12,000 gem dealers around the world. During that same period, Standard & Poor’s 500 index increased 14%.

Martin Rapaport, a former diamond dealer who built the industry’s biggest diamond-trading network RapNet, said a billionaire friend recently bought 100 single-carat diamonds and had them strung together in a Roaring Twenties-style strand. That way, if the man’s fortunes shifted, he could step on an airplane with his nest egg, worth roughly $1.1 million, looped safely around his wife’s neck. “If the world gets a computer virus and suddenly you need to move $10 million in 48 hours, gold will set off metal detectors and too much cash gets cumbersome,” Mr. Rapaport said, “but you slip on a $5 million ring and a $5 million necklace and you’ve got no problems.”

The difference is that investors dominate the jewellery market now, and their tastes and collecting habits are determining price levels for all sorts of gems. In China, industrial tycoons mainly covet D-flawless diamonds-defect-free gems. This preference for perfection revealed it when Chinese investors even sidestepped larger but slightly clouded stones in favour of smaller, flawless varieties, said Sotheby’s specialist Lisa Hubbard. Elsewhere in the world, though, bigger still appears to sell better: Last month, Sotheby’s sold a 75-carat pear-shape white diamond for $14.2 million; the seller paid $4.3 million for it in 2001, earning a 230% return.

Collectors in China have also catapulted asking prices for coloured diamonds-particularly in rare shades of pink and blue. Christie’s says the last time its $39 million “Princie” pink diamond came up for auction in 1960, it sold for $1.3 million. Christie’s is selling sapphire, diamond and emerald rings next week.

Now, auction houses are doing whatever they can to appear accessible to novices. Anyone who stopped by Christie’s jewellery preview last month in New York could have bought a 297-page catalogue with pages of descriptions devoted to its priciest pieces like the “Princie,” which had been mined in India 300 years earlier and carried a $30 million estimate.

When the “Princie” came up for bid a couple of days later, a model in a pink designer-ball gown held up the stone for one final glimpse in the saleroom. Minutes later, the gavel fell and a telephone bidder won it for $39.3 million, making it the second-priciest gem to ever sell at auction.

At rival Sotheby’s, Diamonds are also paying off. Ms. Hubbard said the house auctioned off $460.5 million worth of jewellery last year, up 58% from its sales in 2007-the peak of its last market cycle.