Gold as a strategic asset for European investors

During a period of extraordinarily serious economic uncertainty in the eurozone, continued concerns about economic growth in the US heading into an election year, and the possibility of an economic slowdown in China, we wanted to examine the relevance of gold as a strategic asset for euro-based investors to protect their portfolios and to mitigate the systemic risks being faced.

A new study from New Frontier Advisors (NFA) entitled, ‘Gold as a strategic asset for European investors’, was commissioned by the World Gold Council to address these concerns. The NFA’s respected optimiser is used to analyse the statistical significance of gold for adding diversification value to an investment portfolio from the currency base and perspective of a € based investor. It takes a conservative strategic return expectation that the long-term real return of gold is equal to zero.The findings suggests that an optimal strategic allocation to gold for euro-based investors ranges from 2-3% for the most diversified and lowest risk portfolios, to between 4-9% for portfolios split 50/50 between equities and bonds and as high as 10%, for portfolios with the majority of assets in equities.

The NFA study makes a valuable contribution towards the World Gold Council’s own body of investment research, adding further third-party evidence to the case for gold as a foundation asset which provides insurance against extreme events. We believe that the relevance of gold as a strategic asset is likely to continue to grow in a world characterised by sluggish economic performance, poor investment returns, currency wars and high individual and systemic risk. Gold has unique properties which can protect European investor’s portfolios against the systemic risks being faced.

-Diamondne.ws

Diamond demand to grow 7%, supply 3%

The rising consumer demand for diamonds in India and China coupled with a recovery in developed countries will result in demand outstripping supply within the next decade, a new report from consulting firm Bain & Co. shows.

Bain & Company released the report, titled “The Global Diamond Industry, Lifting the Veil of Mystery,” on Dec. 2. It was commissioned by the Antwerp World Diamond Centre, the organization that supports the industry in the diamond-trading hub of Antwerp.

In the report, Bain & Company outlines three scenarios for diamond supply-demand between now and 2020.

In the “base” scenario, demand is projected to grow at 7 percent during that time period, while supply increases only 3 percent.

The “higher” scenario pushes those figures to 11 percent and 4 percent, respectively, while in the “lower” scenario, demand is forecasted to grow 5 percent, while supply is flat.

The report lists five possibly disruptive factors that could impact the supply-demand balance over the next decade.

The first is the uncertain macroeconomic outlook, which could place downward pressure on demand. “A severe double-dip recession...could potentially cause a significant slowdown of demand growth for diamonds beyond what is projected in the lower-demand scenario,” the report states. “Particularly troubling and difficult to predict is the potential fallout from the European debt crisis and the continued unclear economic outlook in the United States at the time of the writing of this report.”

Conversely, the development of a significant investment market for diamonds could cause a surge in demand. This is particularly feasible in markets where consumers are concerned with the inflation of local currency and lack of access to financial instruments that act as a hedge against inflation, such as China.

Also potentially impacting the supply-demand balance are growing consumer acceptance of lab-grown diamonds, the discovery and rapid development of a new source of diamonds as well as political instability, the lack of generic marketing and protectionist policies in diamond-producing countries. The report notes that the risk of these developments, however, remains low.

Overall, the report concludes that the outlook for the diamond industry is overwhelmingly positive.

“In the next decade, demand for rough diamonds is set to outpace supply under all considered scenarios, indicating a strong positive outlook for the industry. Several disruptive factors could negatively impact the diamond supply-demand balance, but all of these factors are unlikely to manifest,” it states.

-National Jeweler

DE BEERS OPENS NEW DIAMOND JEWELRY BOUTIQUE IN TIANJIN, CHINA

De Beers Diamond Jewellers has opened its Tianjin store at The Friendship Mall. Following the opening of its first store in Beijing in May, the Tianjin store is De Beers' second store in mainland China and represents De Beers' expansion into the fast growing Chinese market.

The 75 square meter store features some of De Beers' solitaire diamonds, classic jewelry styles, and one-of-a-kind luxury jewelry creations.

The opening was hosted by Francois Delage, CEO of De Beers Diamond Jewellers; Andrew Coxon, President of De Beers Institute of Diamondsand special guest, actress Karen Mok, who wore the De Beers Wildflowers Collection large statement necklace, bracelet and statement ring.

"We are now able to fully share our exceptional passion and expertise in diamond selection, craftsmanship and design to one of the largest and most discerning markets in the world," explained Delage.

-The Israeli Diamond Industry

India and China Boosting 2011 Diamond Market

Over the past week commodity prices took a dive and the future of some remains hazy. The diamond market has been impressively strong, and as the mid-year mark approaches, predictions are that 2011 will conclude with the same accolades. At worst, diamond prices are expected to remain firm, but some predictions have prices rising due largely to growing demands in India and China.

India and China

The people of India and China are earning the title of diamond consumers. These two countries have seen market growth of about 25 percent and they contributed 20 percent to the global demand over the past year, according to Crisil, a credit rating company.

Both polished and rough diamonds are moving well in these countries. And, this is happening despite price increases.

The closing of Diamdel’s three week auction on May 3 provides indication of the positive market conditions. Prices were up by double digits in some cases, and of the 218 lots made available, all of them sold.

“Consistent demand from Indian based buyers saw them gain a greater share of sales and record demand from Asia Pacific translated into record spot sales to buyers in Hong Kong and mainland China,” CEO Neil Ventura commented after the event.

Polished diamonds

Polished diamonds are feeding growing jewelery demands. In China, diamond jewelry markets grew by 25 percent, while growth in India’s jewelery demand was 31 percent in 2010, according to Varda Shine CEO of Diamond Trading Company (DTC).

But the jewelry demand is not all about being glamorous, at least not in India. Natives of India are well-known for being jewelry investors. Traditionally, their investments have been primarily in gold.

During a tour of the country to assess the diamond market, Shine said “a visible shift is seen in consumers’ perception in the last couple of years, of growing confidence with certification and buy-back guarantees. Inherent gold consumers in India have gradually started diversifying a part of their investment to the diamond jewelery segment.”

Rough diamond supply

There are reports that some rough diamonds have increased in value by up to 300 percent over the past two years. Shine said she is not sure of 300 percent but rough diamond prices, which move in line with polished diamonds, have certainly gone up. She also added that in the future prices will continue going up on reduced supply.

India and China have not been immune to the supply crunch, which is blamed on several factors. To begin with, in response to the economic crisis in 2008, major diamond miners cut their output due to the drop in demand. But, the recovery for the diamond market came faster than expected, straining the market and pushing prices up.

Excessive demand is corrected by increased supply. Mining majors, such as De Beers, are planning to boost production, but that is not an overnight process. There is also some anticipation about the price relieving effects of Zimbabwe’s return to the market.

Meanwhile, extra pressure is being applied to the rough diamond market because supply problems with polished stones has led cutters and polishers to buy rough diamonds, notes Nico Kruger, CEO of Namakwa Diamonds (LON:NAD).

The increasing demands of India and China are expected to result in price hikes of another 20 percent this year, according to Shivom Seth at Mineweb.

If supply does increase to match demand, predictions have prices stabilizing. Either way, there is little indication at this point that diamond prices will tumble before the end of the year.

Petra Diamonds (LON:PDL) says the positive fundamentals of the market provide a compelling case for investment.

-Diamond Investing News