The New Safe Haven Investment - Diamonds

Not only are diamonds a girl's best friend, but they may also be a friend to investors looking for a safe haven from market storms.

The supply and demand scenario for diamonds offers a scenario which points to higher prices.

On the demand side, wealthy Chinese and Indian consumers as well as those from the Middle East have lit a fuse under the diamond market.

Last year, Gareth Penny, the CEO of the leading diamond company DeBeers, spoke about Chinese demand: “If you look back 20 years, there was no diamond acquisition culture in China. But today in Beijing, Shanghai, and Guangzhou, there is an obvious launch pad. 40% of brides in those cities are getting diamond engagement rings. It was zero 15 years ago."

Now consider the supply side of the equation. There have been no new discoveries of large diamond mines for more than a decade. And even if one was found, developing a new mine takes 10 to 12 years.

Diamond prices have already jumped in the past year fueled by Asian demand. The value of top quality polished diamonds of 5 carats have risen to roughly $150,000 a carat, up from the $100,000-$120,000 range of a year ago.

No wonder then that DeBeers, which is owned by Anglo American, said its earned more from its diamonds in the first six months of 2011 than in any previous six month period.

Another factor to consider is that diamonds are still cheap, with prices still well below their inflation-adjusted 1980s peak.

So if one believes in the bullish scenario for diamonds, how can an investor get in on it. Besides buying a diamond for someone special, there is one pure play in the stock market on diamonds.

It is a company called Harry Winston Diamond (NYSE: HWD). The company owns a 40% interest in the Diavik Diamond Mine in Canada. It is also a luxury retailer known as a premier diamond jeweler with many locations in emerging markets.