Diamonds sparkle as gold loses glitter.

MUMBAI: Diamond as an investment assets is picking up pace in India. Although the pace is slow, this rise in investor interest is being fuelled by a combination of factors: rarity of a diamond, rapidly growing demand for this precious gem while supply is becoming a constraint, transparency, reliable certification, added security features and import duty differential with gold.

Consider this: Since July last, when the price of gold touched an all-time high of Rs 33,500 per 10 grams in the Mumbai market, the yellow metal has given a negative return of 10% to about Rs 30,000 now. In comparison, the price of diamond as measured by Solitaire Diamond, a leading player in the market, has gone up by over 10% for most of the good quality diamonds. Comparable over performance for diamonds are seen across various time horizons, data showed.

As an investible asset, diamond's biggest competitor is gold, and lately the rare gem has been scoring over the yellow metal on this front on several counts. "Diamond is the rarest and the purest piece of nature that can only be cut and polished but not mixed or merged with something else. Also it cannot be melted and reshaped (maintaining the same weight)," said Jignesh Mehta, co-founder, Divine Solitaires.

In addition to these advantages for diamonds, gold has often been subject to high import duty. Lately trading and importing of the yellow metal fell on the wrong side of the government and has also been subject matter of politics. Diamond faces no such challenges, Mehta said.

In India, while gold import attracts import duty, importing rough diamond does not attract any duty while a 2% duty is charged in case of polished diamonds. But India polishes most of world's diamonds, so the extra incidence of import duty will not fall on an Indian interested in investing in diamond.

The commonality between gold and diamond lies in the fact that both are considered international commodities, that is one can sell gold and diamond in any part of the world.

Also globally both are denominated in dollar, so exchange rate fluctuations impact domestic prices of each in equal measures. And these characters make both, gold and diamond, as good hedges against inflation.

The current demand-supply scenario too is favouring diamond prices to rise. "Most of the world's diamonds come from open cast mines and lately there has not been any addition to the numbers of such mines around the world," Suresh Surana, founder, RSM Astute Consulting group, that has a practice focussing on the diamond industry in India.

"On the other hand, extracting diamond from deep underground mines will raise their cost," he said.

Source : timesofindia.indiatimes.com