Diamond prices have softened as fears over the global economy have grown, says Garry White in The Daily Telegraph. But diamonds are still among the year’s best-performing commodities and the longer-term outlook is positive. “Both sides of the supply-demand equation are supportive.” No major new diamond mine has been discovered for decades, while production is in decline at many of the mines currently open.
Demand is also on the rise in emerging markets. Another 800 million middle-income consumers are expected to emerge by 2030, and half of these big spenders will be in India or China. In China the culture of diamond engagement rings has spread rapidly over the past 15 years. Half the brides in Shanghai and Beijing now receive them, according to Anglo American, the mining group. In India, surging demand has prompted one mall to open a vending machine selling diamond jewellery and gold coins.
Given the solid outlook, you should tuck away a few shares in Petra Diamonds (LSE: PDL), says White. Petra’s production is expected to increase fourfold over the next three years, and it is on a June 2012 price/earnings ratio of 11, falling to under eight in 2013.