Expected diamond boom - 2

A new type of tourist is invading Valletta in significant numbers. One only has to witness the queue trying to enter St John's Co-Cathedral every morning. This means that we now have highly educated tourists in our midst and higher education also reflects a higher spending power. Malta has become a strong base for many a millionaire's yachting holiday.

Amsterdam has long learned how to attract the rich tourist through its diamond trade. St Petersburg is now learning how to do so as well, courtesy of a shop selling famous Czarist jewellery, with the unpretentious name, 19th Century.

This shop of modest proportions can be easily imitated in Malta, which definitely has a wonderful hoard of Victorian and Czarist antique jewellery - some occasionally finds its way into our Monte di Pietà auctions.

The demand of the intentional millionaire tourist, inhabiting the sleek yachts, which have become a permanent fixture of our seascape, is more for antique jewellery than for the less inspired and more expensive modern auctions.

All rich women in the world are now updating their jewellery collections, supplying the underpinning for the next diamond boom. Synthetic Russian diamonds definitely found their way into their collections before the De Beers Diamond Trading Company developed a shoebase-sized machine that can distinguish real from synthetic diamonds in seconds, with 98 per cent accuracy.

It took De Beers several years to develop this device, but this provided a gap period long enough to justify the present perplexity in many a lady's heart as she looked into her jewellery box. This mounting aversion to synthetic diamonds will doubtless reach Malta in due time.

As knowledge about diamonds spreads, the result can only be that every serious diamond collection will need some replacement. It is not so long ago that a second device to supplement that already described has been developed.

It employs a beam of ultraviolet light for a considerable period of time; at least since the Fifties, Russian diamond forgers had a field day, and the fraud was only detected because Russia was exporting more diamonds than it could possibly be extracting from its mines. Anybody who bought an expensive diamond in the past 50 years had better examine it under this light.

Maltese buyers have had their disappointments in Old Bond Street in London and this also speaks for that street's integrity and its continuing flourishing trade in diamonds. For now the disappointed Maltese buyers know where they stand. The London police have done their duty to safeguard London's reputation.

Fascinating developments

It will not be long before the price of diamonds will start to reflect that of gold as it did 21 years ago. The contraction in gold's price was brought about by Ben Bernanke (head of the US Federal Reserve Bank), who is rightly anxious about its dramatic rise during the past year (a rise foretold by yours truly in February last year in this newspaper).

The recent rally will doubtlessly continue, for as Philip Manduca of Titan Investments declared on CNBC, gold and the dollar are now the two major currencies in the world. The dollar is destined to be replaced by the euro as a world currency in the next 25 years.

Nothing can stop the advance of gold but the US dropping its current military involvement in the Middle East. This can be expected to go on whether Bush is elected or not. The US needs Middle Eastern oil, for its reserves are derisory.

Nine years ago most central bankers, economists and financial journalists thought that gold was dead. The whole position has been overturned completely in recent days, with Russia leading the global 'stealth demand' for gold.

There is now no stopping the long-term rise in the price of gold for the world's biggest supplies fell 10.9 per cent in the first quarter of 2006 despite high prices. The price of diamonds is continuing for the present time to languish, as stated by De Beers on Bloomberg.

I have to state at this point, one which I hope to explore in a future article, that diamonds are not an investment commodity. Diamonds are the best of safeguards against disaster but not for the making of money out of money.

The Italian financial newspaper Il Sole-24 Ore publishes the price of diamonds every Friday not because of their investment value but because Italy manufactures half of the world's jewellery.

The last fascinating development ensuring the success of the coming diamond boom is that gold is being used extensively by the great houses like Chopard to create what have been called "golden diamonds". Gold usually holds a diamond in its claws.

This role is being reversed, giving pride of place to the precious metal by transforming it into a diamond. The resulting golden diamonds are forged into the facets of a diamond cut and set surrounded by diamonds.

These developments will certainly give many a rich woman much to dream about. Their acquisitions will be by no means investments, for there will be an enormous premium for the artistic work involved, but they will certainly prolong the happy life of every member of the family much better than nicotine or hard alcohol.

These are also developments that will keep many a jeweller fully employed in the coming diamond boom.

(Concluded)

This article is not intended as investment advice, but aims to help produce an investment culture. John Azzopardi Vella has promoted the Malta Development Fund and advised S&P. He is currently a research economist with DBR Investments Ltd, which is licensed by the MFSA. E-mail: johnazzopardivella@hotmail.com.