Cut Diamonds Outpacing Gold Still `Grossly Undervalued': Chart of the Day

Polished diamonds, beating gold this year, remain “grossly undervalued” relative to uncut gems and will extend gains on booming demand in India and China, WWW International Diamond Consultants Ltd. said.

The CHART OF THE DAY shows polished gems trailing rough diamonds, which rose to an all-time high this year, according to data compiled by polishedprices.com, as supply from mine operators fails to keep up with Asian demand. Cut stones, up 9.6 percent so far in 2011, have still outperformed gold, which climbed to a record $1,497.90 an ounce on April 18.

“Rough has just gone ballistic,” said Charles Wyndham, founder of WWW International and formerly a director at the sales operations of De Beers. “Polished is grossly undervalued. If people are pushing rough skywards because of an anticipated shortage, at the very least the same should apply to polished.”

China recently surpassed Japan as the second-biggest buyer of diamonds, behind the U.S., which consumed 38 percent of production in 2010, according to De Beers. Demand in India grew 31 percent last year, while in China it jumped 25 percent and the U.S. market expanded 7 percent, it said in February.

While rough prices advanced to a record this year, polished gems are below their 1979 all-time high, polishedprices.com data show. Cut stones have risen above levels reached in 2008 before a slump in demand spurred by the global financial crisis.

Rough prices may gain an annual 15 percent to 20 percent in the next two to three years, according to Namakwa Diamonds Ltd. (NAD) Chief Executive Officer Nico Kruger. “Prices are overheated,” he said yesterday. “There is just no supply, so what else must the big cutters and polishers do? They must buy.”

To contact the reporter responsible for this story: Maria Kolesnikova at mkolesnikova@bloomberg.net

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