The recent surge in prices of polished diamonds and a similar rise in the rates for rough diamonds since July last year has hiked the cost of diamond jewellery, a senior official of a leading jewellery firm has said.

Though retailers are trying not to pass on the price increase to consumers by cutting their margins, according to industry experts, the price rise has also reinstated the investment value proposition of diamonds, Karim Merchant, the chief executive officer and managing director of Pure Gold Jewellers, said.

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"With the recent price hikes, consumers are now beginning to realise that diamonds are also a good investment vehicle.

"If we look at the diamond price chart over the last 50 years for average one carat D Loupe Clean wholesale diamond prices, the prices have gone up from $2,700 in 1960 to $25,000 in 2010," he said.

According to Merchant, with the beginning of the wedding season and festivals like Akshaya Tritiya, there will be greater demand for diamond jewellery and with diamonds' emergence as one of the best ways to get a higher yield on savings, this is the best time to buy.

Global production of premium cut diamonds is less than 900 carats per year.

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This means, all together, there are only 750 stones between 1.00 carat to 1.39 carat D Loupe Clean available per year in the whole world.

To produce these 750 diamonds, mining companies have to dig more than 800,000,000 tonnes of Kimberlite, the rock in which rough diamonds are found.

De Beers stated in November, 2008, that if diamonds are mined at the current rate, within 20 years, we could face a scarcity.

Merchant said that millions of new middle and high class consumers in emerging markets like China and India will create increased demand for diamonds in the future and this will gradually push up diamond prices, as diamonds are a thousand times more rare than gold.

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Peter Meeus, the chairman of the Dubai Diamond Exchange, said diamonds are a highly transportable store of wealth and the industry is driven by consumer demand and economic growth.

"With the economy improving and strong demand from emerging markets, investment value of diamonds is fortified. Traditionally marketed as an ornament, the industry must do more to create awareness of the investment value of diamonds.

"Consumers need to know their hard-earned money is safe when invested in a commodity that has always been in constant demand, and will even become more so in the future," he said.

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The high degree of rarity and the easiness to transport makes for its value.

The best investment in diamond is to wear diamonds in diamond jewellery, as it is easy to trade.

Speaking about the outlook for diamond prices in the near future, Merchant said: "I feel polished diamond prices can easily increase another 20 to 25 per cent from here before the end of this year as typically during summer, American retailers start their buying for the Thanksgiving and Christmas season."