INVESTMENT EXTRA by IAN LYALL: Can diamonds be your best friend?
If the financial crisis increased the popularity of precious metals, then it had the opposite effect on the £45billion-a-year diamond jewellery market. In the immediate aftermath of the meltdown it flat-lined as the US and Japan reined back their spending.
The rebound in the market for rough stones began in 2009, but demand for polished diamonds remained subdued.
Only recently has the price of the finished product begun to pick up pace as the cutters of Surat - in the Indian state of Gujarat - New York and Tel Aviv exhaust their stockpiles.
Long-term bet: Supermodel Iman Bowie has the right idea - buying jewellery is probably the safest way to invest
Now City broker Charles Stanley reckons we are on the cusp of what it calls a 'structural bull phase'. In plain English this means a sustained period of rising prices.
There is evidence to support this assertion. The world-recognised Rapaport diamond price index is up 16.3 per cent in the year to date, with the average price for polished stones ahead 6.6 per cent in March alone.
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Demand from the newly-minted middle classes of China and India is now the driving force behind the surge of diamond prices.
And it should be noted the two emerging economic superpowers have been largely unaffected by the financial distress seen in the West.
At the same time there is the small matter of supply, which is in decline.
It hit a peak in the 1980s with the industry sitting on up to 80 years worth of stones to a position where today it is below 20 years.
'Diamonds have very definitely come back into fashion,' says Paul Loudon, whose company Diamond-Corp owns the historic Lace mine in South Africa.
The former analyst adds: ' In response to the price collapse in 2008 all the major producers cut back production especially De Beers, the world leader. So supply is really tight.
'The demand side is driven by an almost insatiable appetite from China and India. For the foreseeable future that is likely to grow.'
But how does an investor make money from the diamond market? Well the short answer is with difficulty.
Buying and holding diamond jewellery is one obvious way, but there are few other means.
Exchange traded funds that specialise in gold are ten-a-penny. However you'll struggle to find an equivalent diamond market investment opportunity.
Probably the only reliable way of hitching your wagon to that 'bull cycle' is to buy into the companies that mine and explore for the stones.
If you want a piece of the big daddy De Beers, which dominates the market, then you might consider buying shares in Anglo American, which owns 45 per cent of the private company - founded by Cecil Rhodes and which today is chaired by the billionaire Nicky Oppenheimer.
However in doing so you are also acquiring a major exposure to the bulk commodities industry.
Otherwise there are around ten specialist diamond companies whose shares are quoted here in the UK.
For the more adventurous the Toronto and Australian exchanges are havens for these companies.
They split into two groups - those with producing mines and those searching for diamonds.
Buying shares in an exploration company is a high risk, high reward investment.
Some stones are recovered from mud and gravel and are known as alluvial diamonds.
Most, however, are embedded in kimberlite, a hard volcanic rock that is forced through the earth's crust in dense vertical formations called pipes.
And here's where it gets difficult. There are fewer than 3,000 kimberlites in the world, with only 300 containing any diamonds at all.
And of those 300, probably only 50 have stones in the economic concentrations needed to create a mine.
Even then it takes a major feat of mining engineering to get at the kimberlite and then get at the gems.
So the chances of success are slim. And beware, explorers will issue equity at 12-to-18-month intervals to replenish the coffers, and you as the investor must decide whether you buy the shares or risk being diluted out of sight.
That said, expect the shares to take off if the prospector strikes it lucky.
A safer bet is the company with a producing mine. But even then there are a few wrinkles to look out for when doing your research.
Make sure there is sufficient supply of the sparklers - for ten years or more.
And that enough of them are of gem quality to make the business viable and profitable.
OUR VERDICT: Investing in diamond companies is not for widows and orphans. In fact a purchase from the jewellers may be a safer - and more satisfying - long-term bet.
MAKE IT YOUR QUEST TO SEEK OUT OIL COMPANY
Nigel Hares has spent £3.3million building up his shareholding in EnQuest, the North Sea oil and gas company.
The chief operating officer bought the shares in two tranches.
With 40 years experience of the oil industry, 22 of them with BP, it would be a brave investor that ignored this buy signal.
EnQuest has 26 production licences and earlier this month announced a tenfold increase in annual profits to £101million, alongside a significant hike to its production figures and reserves.
If the financial crisis increased the popularity of precious metals, then it had the opposite effect on the £45billion-a-year diamond jewellery market. In the immediate aftermath of the meltdown it flat-lined as the US and Japan reined back their spending.
The rebound in the market for rough stones began in 2009, but demand for polished diamonds remained subdued.
Only recently has the price of the finished product begun to pick up pace as the cutters of Surat - in the Indian state of Gujarat - New York and Tel Aviv exhaust their stockpiles.
Long-term bet: Supermodel Iman Bowie has the right idea - buying jewellery is probably the safest way to invest
Now City broker Charles Stanley reckons we are on the cusp of what it calls a 'structural bull phase'. In plain English this means a sustained period of rising prices.
There is evidence to support this assertion. The world-recognised Rapaport diamond price index is up 16.3 per cent in the year to date, with the average price for polished stones ahead 6.6 per cent in March alone.
More...
How to invest in gold {thisismoney.co.uk}
Isas and tax-free investing {thisismoney.co.uk}
Europe is shaken by fresh Irish woe after credit rating cut
Demand from the newly-minted middle classes of China and India is now the driving force behind the surge of diamond prices.
And it should be noted the two emerging economic superpowers have been largely unaffected by the financial distress seen in the West.
At the same time there is the small matter of supply, which is in decline.
It hit a peak in the 1980s with the industry sitting on up to 80 years worth of stones to a position where today it is below 20 years.
'Diamonds have very definitely come back into fashion,' says Paul Loudon, whose company Diamond-Corp owns the historic Lace mine in South Africa.
The former analyst adds: ' In response to the price collapse in 2008 all the major producers cut back production especially De Beers, the world leader. So supply is really tight.
'The demand side is driven by an almost insatiable appetite from China and India. For the foreseeable future that is likely to grow.'
But how does an investor make money from the diamond market? Well the short answer is with difficulty.
Buying and holding diamond jewellery is one obvious way, but there are few other means.
Exchange traded funds that specialise in gold are ten-a-penny. However you'll struggle to find an equivalent diamond market investment opportunity.
Probably the only reliable way of hitching your wagon to that 'bull cycle' is to buy into the companies that mine and explore for the stones.
If you want a piece of the big daddy De Beers, which dominates the market, then you might consider buying shares in Anglo American, which owns 45 per cent of the private company - founded by Cecil Rhodes and which today is chaired by the billionaire Nicky Oppenheimer.
However in doing so you are also acquiring a major exposure to the bulk commodities industry.
Otherwise there are around ten specialist diamond companies whose shares are quoted here in the UK.
For the more adventurous the Toronto and Australian exchanges are havens for these companies.
They split into two groups - those with producing mines and those searching for diamonds.
Buying shares in an exploration company is a high risk, high reward investment.
Some stones are recovered from mud and gravel and are known as alluvial diamonds.
Most, however, are embedded in kimberlite, a hard volcanic rock that is forced through the earth's crust in dense vertical formations called pipes.
And here's where it gets difficult. There are fewer than 3,000 kimberlites in the world, with only 300 containing any diamonds at all.
And of those 300, probably only 50 have stones in the economic concentrations needed to create a mine.
Even then it takes a major feat of mining engineering to get at the kimberlite and then get at the gems.
So the chances of success are slim. And beware, explorers will issue equity at 12-to-18-month intervals to replenish the coffers, and you as the investor must decide whether you buy the shares or risk being diluted out of sight.
That said, expect the shares to take off if the prospector strikes it lucky.
A safer bet is the company with a producing mine. But even then there are a few wrinkles to look out for when doing your research.
Make sure there is sufficient supply of the sparklers - for ten years or more.
And that enough of them are of gem quality to make the business viable and profitable.
OUR VERDICT: Investing in diamond companies is not for widows and orphans. In fact a purchase from the jewellers may be a safer - and more satisfying - long-term bet.
MAKE IT YOUR QUEST TO SEEK OUT OIL COMPANY
Nigel Hares has spent £3.3million building up his shareholding in EnQuest, the North Sea oil and gas company.
The chief operating officer bought the shares in two tranches.
The first was acquired at an average price of 140.62p for a total of £1.9million, while the second cost him £1.4million at 143.86p a share.
His shareholding in EnQuest is now worth close to £5million. With 40 years experience of the oil industry, 22 of them with BP, it would be a brave investor that ignored this buy signal.
EnQuest has 26 production licences and earlier this month announced a tenfold increase in annual profits to £101million, alongside a significant hike to its production figures and reserves.
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