Diamonds Rising due to Demand from India (HWD, MDM, BHP, RIO)

Buying by Indians is increasing revenues, profits and market potential for diamond companies such as Harry Winston Diamond Corporation (NYSE: HWD),  Mountain Province Diamonds (NYSE: MDM), BHP Billiton LTD (NYSE: BHP) and Rio Tinto (NYSE: RIO).

In a recent article in the Financial Times, "The business in India's bold, bright traditions," it was detailed how significant a player India has become in the diamond trade.  "Today, 11 out of every 12 diamonds in the world is cut and polished in India," noted Rupak Sen, with Gemfields.  The Asia Marketing Director for Gemfields, Sen added that, "India is the largest supplier of jewelry to Middle Eastern retailers, particularly Dubai."  Last year, the Indian jewlery industry grew by more than 40 percent.  Next year, growth is projected at around 15-16 percent.

As was reviewed in a previous article on www.smallcapnetwork.com, diamonds are attracting investor attention for many of the same reasons as gold.  But, as the article focused on, diamonds have many advantages over gold as an investment.  These are very important for speculators, traders and investors no matter what the time horizon or objective, as is the emergence of India and its demand.

The first advantage that diamonds have over gold is that it is not an investment, it is speculating.  Gold has no investment value as more than 90% is used solely for storing away as an inflation hedge or to protect against debasement of the currency.  As Liam Denning wrote in "Bubbly Gold Might Take a Bath, a recent article for The Wall Street Journal, "In one respect, gold always is in a bubble.  An inert metal in every sense, gold has no intrinsic value as an asset so buyers focus on is resale value.  This search for the greater fool is characteristic of bubbles."  The falling price of gold in recent trading could indicate the bubble is finally bursting due to the lack of fundamental economic demand.

This is not so for diamonds.  About 80% of diamonds are used for industrial purposes, such as lasers, drill parts and surgical equipment.  This will continue to rise in the future.  This will also prevent an asset bubble from forming for diamonds the way it has for gold.  Those investing in diamonds do not have to worry about being the "greater fool.'

The future of investing also favors diamonds.  For the high end sect, diamonds are a more attractive investment than gold.  The value is more concentrated, the asset is more portable, and there is no property tax.  As a matter of fact, diamonds represent the most concentrated store of investments that exist.  In addition, the access is broadening to all investor classes as, according to Charles Wyndam, founder of PoishedPrices, "When you look at seriously expensive stones, they'll go straight into a safe...there is now a huge amout of interest to open lower-value diamonds to investors as well."  This will serve to raise the prices of diamonds and companies in the industry in an orderly, responsible, and fundamentally sound process.

This is happening now across the globe as more affluent consumers in India and China are starting to realize the value of investing in diamonds.  Prices have risen more than 50% since 2010, much of that in the last six months. According to data from PolishedPrices, the value of 5 carats, about 1 gramme, of top quality polished diamonds is now at $150,000 a carat, about a 50% increase from a year ago.  While diamonds have already increased greatly in value, some analysts see prices doubling or even tripling by 2013.  Much of this will result from the greater demand in Asia, as "...the emerging middle classes are buying their first diamonds," noted Pooja Kotwani, India Managing Director of Rapaport.  "They are moving from a traditional gold band to a diamon-set ring.  That is having a huge effect."  In India, it is said, as was pointed out by the article in the Financial Times, that the jewelry one wears is as indicative of their social class as is one's accent in England.